Title: Selling accounts receivable and the underinvestment problem
Abstract: Firms plagued by the Myers underinvestment problem can mitigate the severity of underinvestment by selling their high credit-quality accounts receivable. This paper solves for the break-point level of receivable credit-quality (that is, the level of credit-quality such that the sale of receivables whose quality is greater than this level will mitigate the magnitude of underinvestment,) and demonstrates that this break-point is an increasing function of the riskiness of the firms' debt. The predictions of this model have broad implications for the nature of factoring and receivable securitization contracts.
Publication Year: 1999
Publication Date: 1999-06-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 38
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