Kim is from Haifa University, and Maksimovic is from the University of British Columbia. We are grateful to Lemma Senbet, Sheridan Titman, Richard Green, Larry Epstein, Murray Frank, Rob Heinkel, Michael Tretheway, Joseph Williams, and the participants of finance workshops at UBC and Wisconsin-Madison for helpful suggestions. Sandra Betton, Debbie Reichel, Jane Saly, and Yiming Zhang provided excellent research assistance. This research was supported by grant number 410–88–0783 from the (Canadian) Social Science and Humanities Research Council. We are responsible for any remaining errors.
Debt and Input Misallocation
Article first published online: 30 APR 2012
1990 The American Finance Association
The Journal of Finance
Volume 45, Issue 3, pages 795–816, July 1990
How to Cite
KIM, M. and MAKSIMOVIC, V. (1990), Debt and Input Misallocation. The Journal of Finance, 45: 795–816. doi: 10.1111/j.1540-6261.1990.tb05106.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
We investigate a class of agency costs of debt that arise because debt financing affects the firm's incentives to use inputs efficiently. A methodology for estimating this class of costs is presented and applied to a major industry, air transport. Our results are consistent with agency models that predict a decrease in efficiency as the debt increases. A part of the loss of efficiency that we identify is attributable to the greater use by levered firms of inputs that can be monitored and are collateralizable.