| Fecha: |
2016 |
| Resumen: |
This paper introduces a maturity choice to the standard model of firm financing and investment. Longterm debt renders the optimal firm policy time-inconsistent. Lack of commitment gives rise to debt dilution. This problem becomes more severe during downturns. We show that cyclical debt dilution generates the observed counter-cyclical behavior of default, bond spreads, leverage, and debt maturity. It also generates the pro-cyclical term structure of corporate bond spreads. Debt dilution renders the equilibrium outcome constrained-inefficient: credit spreads are too high and investment is too low. In two policy experiments we find the following: (1) an outright ban of long-term debt improves welfare in our model economy, and (2. ) debt dilution accounts for 84% of the credit spread and 25% of the welfare gap with respect to the first best allocation. |
| Resumen: |
The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396. |
| Ayudas: |
European Commission 649396
|
| Derechos: |
Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, la comunicació pública de l'obra i la creació d'obres derivades, fins i tot amb finalitats comercials, sempre i quan es reconegui l'autoria de l'obra original.  |
| Lengua: |
Anglès |
| Colección: |
Barcelona Graduate School of Economics. ADEMU working paper series |
| Colección: |
ADEMU Working Paper Series ; 51 |
| Documento: |
Working paper |
| Materia: |
Firm financing ;
Investment ;
Debt maturity ;
Credit spreads ;
Debt dilution |
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