This article analyzes the dynamic coordination problem among creditors of a firm with a time-varying fundamental and a staggered debt structure. In deciding whether to roll over his debt, each maturing creditor is concerned about the rollover decisions of other creditors whose debt matures during his next contract period. We derive a unique threshold equilibrium and characterize the roles of fu...

A major investor in private debt market is life insurance companies. They have long-term, fixed-rate liabilities that are matched by private debt investment. Life insurance companies, as the lenders in the private debt market, have the ability to evaluate the credit quality of borrowers and to perform ongoing risk monitoring. In this study we examine the determinants of private debt holdings fo...

We demonstrate the impact of macroeconomic risk on the investment decisions of firms with risky debt and the costs of debt overhang. Debt overhang stems from the transfer between equity holders and debt holders after investment is made. The cyclicality of a firm’s assets in place and its growth options affects when such transfers are likely to occur and how much they can be, which provides a ra...

This paper considers optimal fiscal policy in a deterministic Lucas and Stokey (1983) economy in the absence of government commitment. In every period, the government chooses a labor income tax and issues any unconstrained maturity structure of debt as a function of its outstanding debt portfolio. We find that the solution under commitment cannot always be sustained through the appropriate choi...

In contrast to the standard capital structure theory prediction that builds on a trade-o¤ between interest tax shields and expected bankruptcy costs, public …rms use debt quite conservatively. To address this well known debt conservatism puzzle (Graham 2000), I argue that servicing debt drains valuable liquidity for a …nancially constrained …rm and hence endogenously creates ‘debt servicing cos...

The impact of financial leverage on firm investment is one of the most important issues in corporate finance. Debt overhang reduces the incentives of shareholder–management coalition in controlling the firm to invest in positive net-present-value investment opportunities. On the other hand, firms without debt in their financial structure face with a new problem known as over-investment. T...

We investigate the impact of founding family ownership structure on the agency cost of debt. We find that founding family ownership is common in large, publicly traded firms and is related, both statistically and economically, to a lower cost of debt financing. Our results are consistent with the idea that founding family firms have incentive structures that result in fewer agency conflicts bet...

We study the relationship of risk aversion and debt maturity structure. In a model in which adverse selection in financial markets creates a role for the use of short-term debt, we allow the possibility of borrowers being risk-averse. This creates a trade-off between reduced expected financing costs and higher risk and allows for the study of the effect of risk aversion on optimal maturity stru...

We examine the determinants of aggregate corporate capital structure using a novel dataset of accounting and market information that spans most publicly traded firms over the last century. We show that the stability of nonfinancial aggregate leverage over this period reflects two opposing forces. First, regulated sectors, such as railroads, delevered and contracted in size. Second, unregulated ...

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...