THE AGENCY COST RATIONALE FOR REFUNDING DISCOUNTED BONDS

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

The purpose of this paper is to enhance the understanding of management's motivation for engaging in debt‐for‐debt exchange offers where new long‐term debt with a higher coupon rate is substituted for outstanding debt that is trading at a substantial discount. Some previously advanced arguments that imply a positive effect of such refunding of debt are examined, and their weaknesses are discussed. Then an alternative argument utilizing agency cost theory is advanced, and empirical results are presented to support this alternative argument.

Original languageEnglish (US)
Pages (from-to)43-50
Number of pages8
JournalJournal of Financial Research
Volume8
Issue number1
DOIs
StatePublished - 1985

ASJC Scopus subject areas

  • Accounting
  • Finance

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