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According to (Myers &
Majluf, 1984) firms may find it profitable to sell
secured debt because there are some costs that are linked with issuing the
securities, about which the firm’s managers have more appropriate information
than the outsider shareholders. Because of this, by issuing the debt secured
through the property with known figures cancels these expenses and costs. These
types of findings and information suggests that there is a positive
relationship between the tangibility of a firm with its leverage because firms
that hold more assets will tender its assets more to lenders as the collaterals
and will try to issue more debts so that they will take advantage of this opportunity.
Another information to be noted from the pioneering paper of (Jensen &
Meckling, 1976) & Myers (1977) suggested that
shareholders from highly leveraged firms encourages to invest minimally to dispose
wealth from the debt holders of firm. But at the same time, the debt holders
can restrict these opportunistic behaviors in order to force to them to present
their tangible assets as the collaterals before the issuance of loans, but no
such restriction is possible for the projects that are impossible to be
collateralized. With the help of these incentives, a positive relationship is
made and induced between the leverage of the firm and its capacity to
collateralize its debt. There are lots of empirical studies that are reported
and concludes a positive relationship between the leverage and tangibility of a

However if we note that if managers
have tendency to consume more than high levels of bonuses, can result in a
negative correlation between the leverage and its collateralizable assets (Titman &
Wessels, 1988). A firm having a less
collateralizable assets or tangibility may prefer high levels of the debt to
stop the managers from using high levels of perquisites. According to this
agency explanation, there is a negative relationship between the leverage and

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