Most traditional studies of R&D do not consider that the use of leverage to finance R&D may affect total R&D expenditures in a patent race. We show that debt acts as a commitment to a smaller amount of total R&D spending (debt+equity) than would occur if firms were entirely equity financed. A commitment to lower R&D expenditure can be strategically beneficial; under a flow-cost model, debt indu...

Debt plays an important role in the financing of multinational corporations (MNCs). Interest expenses are typically tax-deductible in most corporate income tax systems, and there has been a growth of interest in recent years in the tax treatment of debt and its consequences. This paper discusses the optimal form that interest deductibility and associated restrictions should take in a multi-juri...

The ‘financial accelerator’ model when applied to households states that shocks to household balance sheets (primarily changes in house prices) amplify fluctuations in consumer spending by tightening or relaxing collateral constraints on borrowing. We construct an alternative model where households also have access to unsecured debt, and examine the effect of shocks to house prices on debt-fina...

Abstract We re-explore the link between government expenditure and private investments within a modern econometric framework. Performing dynamic analysis on panel of 28 OECD countries over 1990–2019, we account for nonstationarity, country-heterogeneity, cross-sectional dependence. By estimating an ECM version novel CS-ARDL model, find robust evidence both short-run long-run adverse effects agg...

Historically, corporations have mainly financed their activities with two securities, debt and equity. The stockholders have responsibility for the operation of the firm through the election of the board of directors; the dividends they receive in return for their subscription of capital are not guaranteed and are paid at the discretion of the board of directors. In contrast, debtholders are pr...

Debt-financed fiscal stimulus programmes directly stimulate aggregate demand through government expenditure or tax cuts, but their effectiveness is highly dependent on direct crowding out of private sector expenditure, spillover effects to the a higher risk premium interest rates, and interaction between policy monetary policy. Using an open-economy dynamic stochastic general equilibrium model,...

We develop an agency model of financial contracting. We derive long-term debt, a line of credit, and equity as optimal securities, capturing the debt coupon and maturity; the interest rate and limits on the credit line; inside versus outside equity; dividend policy; and capital structure dynamics. The optimal debt-equity ratio is history dependent, but debt and credit line terms are independent...