This paper builds a theoretical model that, in the absence of market frictions, an investment strategy is determined by insurance. In the model, management finances a new opportunity using a blend of equity and debt with a covenant that requires insurance coverage to make the debt riskless. In maximizing the total expected value of the investment, the management takes account of the insurance priced in an actuarially fair market. Using an optimal-stopping framework, the model shows that management has an incentive to move an investment decision forward with insured debt. The overinvestment problem arises from a covenant in the debt contract requiring insurance coverage.
Keywords: Property insurance; Investment Strategy; Capital Structure
자료실
자료실
[2014년 제 4차] Insurance, Debt Covenant, and Overinvestment
작성자 : 관리자
조회수 : 972
게시일 :
2014-12-12