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Debt is analyzed in relation to the conflict between three parties, a controlling shareholder, outside investors and creditors. We follow Jensen and Meckling's (1976) and Myers' (1977) intuitions that a leverage may result in excess value appropriation by creditors while at the same time acting...
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Debt is not frequently analyzed in relation to the conflict between controlling and outside shareholders. At the same time, debt leverage stands as a key variable in the design of a control contract as it has a strong disciplinary role. A simple option valuation model is used to show that debt...
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