New debt issue in a competitive environment. Agency costs of debt
New debt issue in a competitive environment. Agency costs of debt

Summary/Abstract: The paper analyzes issues related to equity holder – bondholder conflict on a competitive market. We deal with a model firm which has an opportunity to realize an investment project but the entry of a competitor wastes the value of the firm’s investment option – it becomes worthless. The project may be financed by equity or debt. We examine how the market competition influences the optimal timing of investment decision, firm’s market value, equity market value, old debt value and new debt risk premium and agency costs of debt. It appears that competitive intensity has an important influence on considered items.

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