Most advanced nations today are witnessing a peace-time public debt surge that match post World War levels. This raises concerns about fiscal financing and liquidation of the stock of debt specially in the face of changing demographics. United Kingdom being one of the advanced nations with a high level of public debt and an aging population is facing similar issues of fiscal financing. This pap...

I demonstrate that non-financial corporations act as cross-market arbitrageurs in their own securities. Firms use one type of security to replace another in response to shifts in relative valuations, inducing negatively-correlated financing flows in different markets. Net equity repurchases and net debt issuance both increase when the expected returns on debt are particularly low, or when the e...

The traditional view is that interest deductibility encourages firms to use debt financing; however, some argue that the personal tax disadvantage to interest offsets the corporate tax advantage. This paper investigates the degree to which personal taxes affect corporate financing decisions. In crosssectional regressions that control for personal taxes, debt usage is positively correlated with ...

We develop a dynamic investment options framework that captures " time-to-build " and realistic features for multiple classes of debt, e.g. debt seniority and interacting debt issues with various maturities. The study investigates the effect of debt and equity constraints on firm value, dynamic leverage choice and the effect of " time-to-build " on firm value and leverage choice. It is shown th...

This paper investigates the interactions between preemptive competition and leverage. We find that the second mover always leaves the duopoly market before the first mover, although the leader may exit before the follower’s entry. We also see the leverage effects of debt financing increasing firm values and accelerating investment, even in the presence of preemptive competition. In addition to ...

a limited series of studies on capital structure have been conducted on small-to-medium size enterprises (smes). recent family-bases business literature suggests that these processes are influenced by firm owners’ attitudes toward the utility of debt as a form of financing. other factors like culture, entrepreneurial characteristics, and prior experiences may also be involved. this study intend...

We develop a theory of optimal financing for R&D-intensive firms that uses their unique features—large capital outlays, long gestation periods, high upside, and low probabilities of R&D success—that explains three prominent stylized facts about these firms: their relatively low use of debt, large cash balances, and underinvestment in R&D. The model relies on the interaction of the unique featur...

We examine the relation between a borrowing firm’s ownership structure and its choice of debt source using a novel, hand-collected data set on corporate ownership, control and debt structures for 9,831 firms in 20 countries from 2001 to 2010. We find that the divergence between control rights and cash-flow rights of a borrowing firm’s largest ultimate owner has a significant impact on the firm’...

We apply theories of capital market failure to analyze optimal financing of risky higher education. In the market solution, students can only finance their education through debt. There is underinvestment in human capital, because some students with socially profitable investments in human capital will not invest in education due to adverse selection problems in debt markets and because insuran...

We review and extend recent contingent claims models of capital structure. We focus on two models with analytic formulas in perpetual horizonLeland (1994) and Mauer and Sarkar (2004). We implement the investment option in both models in finite horizon with a numerical lattice while maintaining the analytic structure for the capital structure decisions in the second stage by maintaining the perp...