文档介绍：Chapter 4
Agency Problems in Corporate
Finance
Introduction
As we discussed in the Chapters 1 and 2 when we covered Modigliani-Miller
the standard theory of capital structure that has been the mainstay of text-
books is the trade-off theory. This argues that the benefitofdebtisthe
tax shield and the cost is the deadweight costs of bankruptcy. The tradi-
tional view was that these deadweight costs were bankruptcy and liquidation
costs. In the 1970’s this theory was criticized because it didn’t seem it could
satisfactorily explain observed capital structures. For long periods of time
corporations in the US have on average had long term debt worth about
30-40% of their total value (see, ., Rajan and Zingales (1995)). They
have also paid corporate taxes most of the time. Evidence on bankruptcy
costs provided by Warner (1977) and others suggested that the direct costs
of bankruptcy such as lawyers’ fees were low. Haugen and Senbet (1978)
pointed out that bankruptcy and liquidation costs should not be confused.
If liquidation costs were high they could be avoided by renegotiation with
debtholders in bankruptcy. Given bankruptcy costs are low and corporate
tax rates in the US at that time were 46% the standard theory seemed to
suggest that if corporations increased their debt slightly they could increase
their value. The fact that they did not do this suggested that the theory was
incorrect. The difficulty in explaining firms’ payout policy in the Modigliani-
Miller framework extended to include taxes (the so-called ”dividend puzzle”)
1
2 CHAPTER 4. AGENCY PROBLEMS IN CORPORATE FINANCE
also contributed to the dissatisfaction with traditional approach. All of this
lead to a number of other approaches. These included personal taxes (Miller
(1977)), and approaches based on asymmetric information. There were two
main strands based on asymmetric information, signalling models and agency
theory. We will consider the role of signalling in a subseq