Suchergebnisse

We introduce long-term debt (and a maturity choice) into a standard model of firm financing and investment. This allows us to study two distortions of investment: (1.) Debt dilution distorts firms' choice of debt which has an indirect effect on investment; (2.) Debt overhang directly distorts investment. In a dynamic model of investment, leverage, and debt maturity, we show that the two frictions interact to reduce investment, increase leverage, and increase the default rate. We provide empirical evidence from U.S. firms that is consistent with the model predictions. Using our model, we isolate and quantify the effect of debt dilution and debt overhang. Debt dilution is more important for firm value than debt overhang. Debt overhang can actually increase firm value by reducing debt dilution. The negative effect of debt dilution on investment is about half as strong as that of debt overhang. Eliminating the two distortions leads to an increase in investment equivalent to a reduction in the corporate income tax of 3.5 percentage points. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.

"Another sign of a failed democracy is when a supranational body is allowed to bypass the power of an elected government in order to dictate policy, either directly or through setting terms that circumscribe choices. Most recently, sovereign debt crises have placed several Eurozone nations in this quandary; their economic affairs are largely determined by the European Union's so-called troika—European Commission, European Central Bank, and International Monetary Fund (IMF). The IMF has a long history in this regard as an enforcer for foreign bondholders, especially in imposing structural-adjustment policies on indebted nations in the global South. . But what do we call a democracy that permits its financial elites to hold the citizenry in near-servitude through usurious debt contracts? Can a democracy be considered healthy when household debt so constrains populations that their life choices are effectively voided, and when the monopoly of creditors extends beyond the economic realm to the political control over lawmakers? These were the circumstances under which activists gave birth to Occupy Wall Street (OWS, Occupy) in the fall of 2011. In the four years since the collapse of Lehman Brothers precipitated the US financial crash, the asymmetrical treatment doled out to debtors and creditors had become so familiar and routine that the ubiquitous Occupy street slogan 'Banks got bailed out, we got sold out!' required no explanation. In Europe, where elites tried to pass on the costs of their sovereign-debt crises to the most vulnerable populations—the young and the poor—marchers favored a more defiant posture: 'We won't pay for your crisis.'"

Restoring a country's debt to a sustainable path after a sovereign debt restructuring is key to ensuring a credible and durable exit from the crisis. In recent years, a number of countries have restructured their sovereign liabilities, either following a default, or preemptively, to avoid a default. This Occasional Paper takes stock of the experiences of some of these countries--Argentina, the Dominican Republic, Ecuador, Moldova, Pakistan, Russia, Ukraine, and Uruguay--with debt-restructuring operations, with a view to assessing the outcomes and whether debt sustainability has been restored

AbstractIn this paper the effect of inflation on firms' investment and debt‐financing decisions is examined. Inflation affects optimal investment and financing directly through the probability of accounting loss and the real value of depreciation and interest tax shields. In addition, when corporate and differential personal taxes cause investment and financing decisions to interact, inflation has indirect effects on these decisions through their interactions. In general, the overall effects of inflation on optimal investment and debt are ambiguous in sign. For tax‐exempt firms, however, optimal investment and debt are independent of inflation. For firms that are always in a tax‐paying position, higher inflation reduces optimal investment without affecting optimal debt. Furthermore, inflation causes total firm value to decrease if the depreciation rate exceeds the firm's debt/asset ratio.