Optimal Debt Mix and Priority Structure: The Role of Bargaining Power* by Dirk Hackbarth, Christopher A. Hennessy, & Hayne E. Leland. April 25, 2002
http://www.haas.berkeley.edu/groups/finance/Mix7C.pdf
Enter the discussion by posting your answers to the following questions (1-2 page essay):
Why is it optimal for small firms to avoid public debt markets?
Why do firms shift from bank debt into a mixture of bond market and bank debt over their life-cycle?
Conduct additional research necessary to support your discussion statements. Cite all sources of information you use. All written assignments and responses should follow APA rules for attributing sources.
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Optimal Debt Mix and Priority Structure: The Role of Bargaining Power* DirkHackbarth ChristopherA.Hennessy Hayne E. Leland April 25, 2002 ABSTRACT This paper examines the optimal priority structure and mix of bank and bond market debt within a continuous-time asset pricing framework. Closed-form expressions are derived for the values of renegotiable bank debt, non-renegotiable bond market debt, equity, and levered firm values. We show that the optimal debt structure hinges upon the ex post division of bargaining power between the firm and bank. The optimal debt structure for firms that are weak vis-?
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