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Title: Real flexibility and financial structure : integrated models of the firm under an agency conflicts framework
Author: Correia, Ricardo
Awarding Body: University of Manchester
Current Institution: University of Manchester
Date of Award: 2008
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This thesis analyses the interactions between in vestment and financing decisions under an equityholder-debtholder agency conflicts framework . It imposes time constraints on the life of the options to invest and on the life of the firm , to reflect the reality of concession contracts and patents. In both cases a contingent claims analysis model of a firm is developed, to value the firm and the different claims to the value of the firm. These models are used to determine the agency costs of debt in terms of reduction in firm value (dividing them into their financial and operational components). loss of debt capacity and increase in credit spreads. The concession problem analysed, models two different debt amortization schedules. a constant amortization schedule (CA) and a constant repayment debt schedule (CR). The patent problem also analyses whether it is optimal for a firm to delay filing a patent application when it does not intend to market-launch the product immediately. In both chapters the agency costs of debt measured as a reduction in firm value are not very significant. ]n the concession problem analysed, they represent 0.09% and 0. 13% of the value of the levered firm following a second-best in vestment policy with the CA and CR debt schedules. In the patent problem, the agency costs of debt measured as a percentage of the value of the levered firm following a second-best market-launch policy represent 2.49% when the firm separates the decision to patent from the decision to market-launch the product and 2.25% when both decisions occur simultaneously. However, the impact of the agency conflicts is quite significant when measured in terms of loss of debt capacity. If equityholders could credibly pre-commit to follow a firm maximizing investment (concession problem) or market-launch (patent problem) policy the debt capacity of the firm would increase by 6.74% (CA) and 10. 11 % (CR) in the concession problem and by 27.3% (the firm separates the decision to patent from the decision to market-launch the product) and 25.0% (the firm simultaneously patents and market-launches the product) in the patent problem. These results reveal that the agency conflicts affect more significantly the distribution of wealth between the different stakeholders rather than the overall value of the firm . Models that ignore such conflicts generate relatively accurate valuations for the value of the firm, but they fail to produce good valuations for the different securities.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available