The main purpose of this study is to examine the determinants of the corporate choice between different forms of debt financing. By analyzing the most comprehensive sample of U.S. corporate debt issues to date, I find that firms that issue 144A debt have significantly lower credit quality and higher information asymmetry than firms that issue traditional non-bank private debt. Further, the stud...

T paper has two objectives. First, we show how debt financing distorts a retailer’s inventory decision when the retailer orders multiple items that differ in cost, revenue, or demand parameters. Taking advantage of limited liability, a debt-financed retailer favors items with a low salvage value, those with a high profit margin, and those that represent a large proportion of the total inventory...

This paper incorporates the cost of adjustment between observed and optimal leverage in explaining the variation in firm’s equity or bank-debt financing investments. Using a dynamic adjustment approach identifies the determinants to capital structure between different financial systems. In relation to firm sales U.K and U.S firms have 50-100 percent more equity financing than Swedish firms depe...

I present a model of venture capital contracting in which contracts that involve a mixture of both debt and equity are efficient and dominate pure-equity and pure-debt financing. The optimal contract balances the venture capitalist’s incentive to intervene in the project and the entrepreneur’s desire for control. JEL classification: G24, G32

Credit ratings affect firms’ access to capital and investment choices. We show that the identity of the credit analysts covering a firm significantly affects the firm’s rating, comparing ratings for the same firm at the same time across agencies. Analyst effects account for 30% of the within variation in ratings. Moreover, the rating biases of analysts carry through to credit spreads on the rat...

This paper proposes the creation of a Sovereign Borrowing Entity (SBE) under the auspices of the International Monetary Fund (IMF) and other International Financial Institutions (IFIs). The SBE guarantees bond issuances by developing nations, packages them in relatively small denominations, and auctions them to the public. Should a developing debtor country fail to pay its debt, the SBE would r...

We model dynamic investment, financing and default decisions of a firm, which begins its life with a collection of growth options. The firm exercises them optimally over time, and finances the costs of investment by adjusting its capital structure, which trades off the tax benefits with the distress cost of debt and the agency cost of investment distortions from potential debt overhang. Conflic...

I quantify a new motive of holding cash through the channel of financing risk. I show that if the access to future credit is risky, firms may issue long-term debt now and save funds in cash to secure the current credit capacity for the future. I structurally estimate the model and find that this motive explains about 30% of cash holdings in the data. Counterfactual experiments indicate that the...

We examine in a Cournot duopoly model the well known view that short-term capital market debt can control managerial moral hazard. We show that short-term debt does not provide this discipline because of management’s manipulation of the information flow to the market. Shareholders may nevertheless prefer short-term debt because it motivates management to be more aggressive in the product market...

We present novel empirical evidence on the use of off-balance sheet financing by publiclytraded, U.S. nonfinancial firms. We find that about 5 percent of nonfinancial firms reported using a special purpose financing vehicle (SPV) to finance receivables in 2006. At the origination of the off-balance sheet financing program, firms experienced abnormal increases in stock prices on the order of 2 p...