Government Loan Guarantees and the Failure of the Canadian Northern Railway
The failure of the Canadian Northern Railway is analysed with a model of optimal capital structure drawn from Finance theory. Ex ante bankruptcy probabilities, which are computed on the basis of different assumptions about investors' expectations, range from 40% to 90%; and our best estimate is about 75%. These high probabilities, we argue, were a consequence of loan guarantees provided to the Canadian Northern by the Federal and provincial governments. These guarantees induced the promoters, MacKenzie and Mann, to undertake an ex ante unprofitable project and to finance that project almost exclusively with debt.
Year of publication: |
1986
|
---|---|
Authors: | Lewis, Frank ; MacKinnon, Mary |
Institutions: | Economics Department, Queen's University |
Saved in:
Saved in favorites
Similar items by person
-
Capital Constraints and European Migration to Canada: Evidence from the 1920s Passenger Lists
Armstrong, Alexander, (2009)
-
Bend it like Beckham: Hours and Wages across Forty-Eight Countries in 1900
Huberman, Michael, (2007)
-
Carlos, Ann, (1991)
- More ...