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Imperfect Competition, Agency, and Financing Decisions

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  • Kanatas, George
  • Qi, Jianping

Abstract

We examine in a Cournot duopoly model the well-known view that short-term capital market debt can control managerial moral hazard. We show that short-term debt does not provide this discipline because of management's manipulation of the information flow to the market. Shareholders may nevertheless prefer short-term debt because it motivates management to be more aggressive in the product market. We contrast short-term and long-term capital market financing with bank credit that includes monitoring. The empirical implications link managerial agency, predation, and the choice of debt maturity and funding source. Copyright 2001 by University of Chicago Press.

Suggested Citation

  • Kanatas, George & Qi, Jianping, 2001. "Imperfect Competition, Agency, and Financing Decisions," The Journal of Business, University of Chicago Press, vol. 74(2), pages 307-338, April.
    • Handle: RePEc:ucp:jnlbus:v:74:y:2001:i:2:p:307-38
    DOI: 10.1086/209674
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    Cited by:

    1. T. Franck & N. Huyghebaert, 2004. "On the Interactions between Capital Structure and Product Markets.A Survey of the Literature," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business (FEB), Review of Business and Economic Literature, vol. 0(4), pages 727-787.
    2. George Kanatas & Jianping Qi, 2004. "Dividends and Debt with Managerial Agency and Lender Holdup," Management Science, INFORMS, vol. 50(9), pages 1249-1260, September.

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