Sinking Funds and the Agency Costs of Corporate Debt

Chihwa Kao, Chunchi Wu

Research output: Contribution to journalArticle

3 Scopus citations

Abstract

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 languageEnglish (US)
Pages (from-to)95-113
Number of pages19
JournalFinancial Review
Volume25
Issue number1
DOIs
StatePublished - Feb 1990

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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