Debt, hedging, and human capital
By: Stephen D. Smith and Larry D. Wall
Contributors: Wall, Larry D.; Federal Reserve Bank of Atlanta
Series: Working paper series / Federal Reserve Bank of Atlanta -- 2005-30; Working paper series (Federal Reserve Bank of Atlanta : Online) -- 2005-30.
Publisher: Federal Reserve Bank of Atlanta
Published: 2005
Place of publication: Atlanta, Ga.]
Language: eng
Format: [electronic resource] /
Description: "This paper provides a theory of debt and hedging based on human capital. We distinguish human capital from physical capital in two ways: (1) human capital is inalienable and can exercise a one-sided option to leave the firm, and (2) human capital is not perfectly replaceable. We show that a firm may reach the first best solution while issuing debt or equity to outsiders provided that either the insiders receive a senior claim or that the firm hedges. We then show that, given asymmetric information concerning costs, the only viable solution has the firm issuing debt to outsiders and hedging"--Federal Reserve Bank of Atlanta web site.
Notes: Title from PDF file as viewed on 8/07/2006.

Includes bibliographical references.

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