The DOI matches its Crossref record; 1 of the 1 references it cites were found in a registry or an index.
Corporate Insurance and the Underinvestment Problem
Abstract
A casualty loss produces option-like characteristics in assets because their value depends on further discretionary investment. With risky debt in the firm's capital structure, the shareholders can have incentives to forgo the discretionary investment, even though it has a positive net present value. Thus a potential incentive conflict exists between the bondholders who want the investment made and the shareholders who do not. The incentive problem can be controlled by including a covenant in the bond contract requiring insurance coverage. Full coverage is generally not required. The maximum deductible depends on the amount of debt in the firm's capital structure and the feasible set of net casualty losses.
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Citations
Cites
Determinants of corporate borrowing
Myers, S. C. (1977) · Journal of Financial Economics · doi:10.1016/0304-405x(77)90015-0 · Cited by 13,169
Cited by
On the Determinants of Corporate Hedging
NANCE, D. R., SMITH, C. W., & SMITHSON, C. W. (1993) · The Journal of Finance · doi:10.1111/j.1540-6261.1993.tb04709.x · Cited by 1,254
Self-citationThe Value of Enterprise Risk Management
Hoyt, R. E., & Liebenberg, A. P. (2011) · Journal of Risk and Insurance · doi:10.1111/j.1539-6975.2011.01413.x · Cited by 829
Evidence on Corporate Hedging Policy
Mian, S. L. (1996) · The Journal of Financial and Quantitative Analysis · doi:10.2307/2331399 · Cited by 688
The Determinants of Enterprise Risk Management: Evidence From the Appointment of Chief Risk Officers
Liebenberg, A. P., & Hoyt, R. E. (2003) · Risk Management and Insurance Review · doi:10.1111/1098-1616.00019 · Cited by 664
Accounts receivable management policy: Theory and evidence
MIAN, S. L., & SMITH, C. W. (1992) · The Journal of Finance · doi:10.1111/j.1540-6261.1992.tb03982.x · Cited by 651
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Metadata
- Authors
- Mayers, D., & Smith, C. W.
- Venue
- The Journal of Risk and Insurance
- Publisher
- JSTOR
- Published
- 1987-03
- Volume
- 54
- Issue
- 1
- Pages
- 45
- ISSN
- 0022-4367 (ISSN-L)
- OpenAlex
- W2314000796
- Cited by
- 356
- References
- 1
- FWCI
- 13.91
- Type
- journal article
- Language
- en
- Open access
- closed
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
