Abstract:In this paper, we analyze the ability of putable debt to add firm value. To stress the impact of a put feature, we compare the resulting optimal firm values and capital structures to those of a firm with straight debt that can be renegotiated. For this purpose, we consider a time-independent firm value model with tax-deductibility of coupon payments, bankruptcy costs in the case of a default, and dynamic restructuring. We find that a put right can always be designed so that a put is enforced for low asset valu… Show more
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