This paper examines whether a firm's sinking fund decision is affected by agency costs. The paper argues that sinking funds can be an effective device to resolve the problems of information asymmetry, risk incentives, and suboptimal investments. Empirical tests are provided. Results show that firms with certain characteristics related to agency problems tend to adopt a sinking fund provision in the bond indenture.
|Original language||English (US)|
|Number of pages||19|
|State||Published - Feb 1990|
ASJC Scopus subject areas
- Economics and Econometrics