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.

Racial discrimination shapes who feels debt as a crushing burden and who experiences debt as an opportunity. U.S. financial products and rules, and the ways they're implemented, amplify this inequality along racial lines.

After the huge debt increases in the 1940s, due to the WWII, and in the 1980s due to the emerging markets' debt crises, the debt overhang problem is once again at the center of the academic and political debate because of the recent debt crisis that affected the European countries in 2009. The debt overhang theory explains how an high level of debt distorts the optimal investment decisions and reduces government's incentives, in the debtor country, to undertake the necessary "adjustment policies". A huge literature focuses on the negative effects deriving from a debt overhang condition. In particular, this kind of literature has been mostly used to describe and to study poor and less developed countries. Nowadays instead, the situation is quite different with the Greek case that represents a very peculiar and never experienced situation. Chapter 1 of the thesis starts with an introduction of the sovereign debt overhang problem. Then, since the aim is to study the possible policy interventions able to solve it, the focus is posed on sovereign debt restructuring as a resolution mechanism. A relief intervention can be considered, indeed, as a way to reduce the debt burden for a country struggling with an high level of debt. Descriptions of the restructuring process, of the macroeconomic consequences and of the Greek case are then provided in this chapter in addition to some stylised facts and an event analysis useful to communicate the main messages. In the past, several different strategies of debt restructuring have been implemented and the consequences they produced were often different case by case. It is then interesting to study the effectiveness of the several options that can be used to restructure public debt. For this reason, a very simple theoretical model is developed in Chapter 2 in order to study three different strategies that can be used to solve a sovereign debt overhang problem. In particular, two strategies are based on a debt restructuring process, via face value reduction or rescheduling, whereas a third one is based on conditional-additional official lending. This strategy relies on the idea that the debtor country can benefit of new lending from the official sector, in order to undertake a larger amount of investment. The aim of the model is to represent schematically the functioning of the three restructuring processes to gain insights into their differences and to study their consequences in term of incentives to invest in a "troubled country". An empirical evidence of the debt overhang hypothesis is then provided in Chapter 3. The combination of the sovereign debt crisis of 2009 and the fiscal consolidation policies implemented as a result, makes indeed interesting to study this hypothesis in Europe. The Chapter exploits then a panel dataset for the European countries, between 1995 and 2015, in order to examine the extent to which increased levels of public debt have led to reduced public investment. We start the analysis from basic POLS models and then we expand it gradually to FE, IV and GMM estimation models. The results validate the debt overhang hypothesis and remain robust across various model specifications.

Cover -- Contents -- 1 Introduction -- 2 A bare-bones model of sovereign debt crises -- 2.1 Optimal default and taxation plans under discretion -- 2.2 Debt pricing -- 2.3 Rational expectations equilibrium and regularity conditions -- 2.4 Equilibria -- 3 The effect of tranching when senior debt is riskless -- 3.1 A Modigliani-Miller irrelevance result -- 3.2 Non-neutrality -- 4 Risky senior debt -- 5 A numerical illustration -- 6 Conclusion -- 7 Appendix -- A Proofs of Propositions -- A.1 Proof of Proposition 1 -- A.2 Proof of Proposition 2 -- A.3 Proof of Proposition 3 -- A.4 Proof of Proposition 4 -- B Equilibria under tranching

For debtors everywhere who want to understand how the system really works, this handbook provides practical tools for fighting debt in its most exploitative forms. Over the last 30 years as wages have stagnated across the country, average household debt has more than doubled. Increasingly, people are forced to take on debt to meet their needs; from housing to education and medical care. The results-wrecked lives, devastated communities, and an increasing reliance on credit to maintain basic living standards-reveal an economic system that enriches the few at the expense of the many. Detailed st

Is the seniority structure of sovereign debt neutral for a government's decision between defaulting and raising surpluses? In this paper, we address this question using a model of debt crises where a discretionary government endogenously chooses distortionary taxation and whether to apply an optimal haircut to bondholders. We show that when the size of senior tranches is small, a version of the Modigliani-Miller theorem holds: tranching just redistributes government revenues from junior to senior bondholders, while taxes and government borrowing costs remain unchanged. However, as senior tranches become sufficiently large, default costs on senior debt transpire into a stronger commitment to repay not only the senior tranche, but also the junior one. We show that there is a lower threshold for senior bonds above which tranching can eliminate default on both junior and senior debt, and an upper threshold beyond which the government defaults also on senior debt. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.

International debt rescheduling, both in earlier epochs and our present one, has been marked by a flurry of bargaining. In this process, significant variation has emerged over time and across cases in the extent to which debtors have undertaken economic adjustment, banks or bondholders have written down debts, and creditor governments and international organizations have intervened in negotiations. Debt Games develops and applies a situational theory of bargaining to analyze the adjustment undertaken by debtors and the concessions provided by lenders in international debt rescheduling. This approach has two components: a focus on each actor's individual situation, defined by its political and economic bargaining resources, and a complementary focus on changes in their position. The model proves successful in accounting for bargaining outcomes in eighty-four percent of the sixty-one cases, which include all instances of Peruvian and Mexican debt rescheduling over the last one hundred and seventy years as well as Argentine and Brazilian rescheduling between 1982 and 1994

Purpose
This paper aims to examine jointly the CEO inside debt and firm debt to further investigate the compensation incentives on risky decision-making and the resulting financial policy decisions concerning the debt structure of the firm.


Design/methodology/approach
Using S&P 1500 data from CRSP, Compustat, Execucomp and Capital IQ between 2006 and 2011, statistical analysis and regression models are used to determine potential correlations between the variable of interest, inside debt and debt control variables, including specialization.


Findings
Firms with high inside debt specialize in commercial loans and drawn credit lines. Larger firms diversify their debt holdings among commercial instruments and senior bonds. As firm size increases with inside debt, the effects are counteracted. Larger firms with high CEO inside debt have lower interest rates on these debt instruments and shorter maturities, suggesting a more conservative financing policy with regards to debt.


Research limitations/implications
Debt diversification is partially affected by compensation in the form of inside debt. Future studies of debt diversification should include CEO compensation controls.


Practical implications
For struggling companies or for those that want to return to a conservative financial policy, they can influence the CEO to make this decision by deferring his compensation to retirement.


Originality/value
This paper considers debt policy through the lens of a key decision maker, the CEO, and uses compensation as an incentive to determine what choices are made concerning debt.

The Great Recession has sent debt levels to a post-WWII high for several advanced economies, reviving the discussion of fiscal consolidation. This paper assesses the macroeconomic implications of tax-based versus spending-based consolidation within the framework of a New Keynesian model with long term government debt. Three results stand out: First, tax-based consolidations are inflationary whereas spending-based ones are deflationary. Second, the net benefits of inflation increase in the average maturity of outstanding debt: inflation revalues debt more efficiently, while distortions due to price dispersion remain unaffected - the maturity effect. Third, as a result, tax-based consolidations can become superior to spending cuts if the average maturity is high enough. Quantitatively, the threshold is two years for US data in 2013. The previous mechanism illustrates the importance of inflation in the consolidation process, even if raising its target rate is considered not to be an option.