2001•Journal of Tongji UniversityRequires access

Firm's Risk-shifting Behavior and Its Selection of Debt Contracts

Wei Yi

Abstract

Due to the payoff asymmetry between firm's owner and its lender,firm has the incentive of risk-shifting.This paper shows,through a proper design of firm's debt structure of private debt and public debt,this problem may be reduced.Hence,a firm's mixed debt capacity is larger than that of its private debt,and its private debt capacity larger than its public debt capacity,in a common sense.

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Key concepts: Recourse debt, Debt, Internal debt, Senior debt, Debt-to-GDP ratio, Debt levels and flows, External debt, Debt ratio