S-Space College of Business Administration/Business School (경영대학/대학원) Institute of Management Research (경영연구소) 경영논집 경영논집 vol.50 (2016)
A Note on the Optimality of the Debt-Equity Mix
- Issue Date
- 서울대학교 경영대학 경영연구소
- 경영논집, Vol.50, pp. 133-143
- Dewatripont and Tirole showed (for the first time) that a mix of debt and equity is optimal and thus provided justification of the most commonly observed capital structure. Using Diamond framework, this note simplifies their model and shows that the main reason why debt-equity mix is optimal is not the divergence of attitude towards risk between shareholders and debtholders as claimed in their papers. It is rather the flexibility debt contract affords in allocating control rights and incentives to liquidate the firm.