The role of high leverage in corporate restructuring, popularity of junk bonds (original-issue, high-yield bonds) and the savings & loan crisis have been important aspects of the finance scene in the 1980s. A very active academic literature has developed in recent years on dealing with financial...

Under incomplete contracting, limited liability creates differential valuations of investments from private and government perspectives. Managers in the private sector tend to over-invest in risky technologies, compared to levels of investment that are optimal from the standpoint of the society...

"This paper provides new evidence regarding the information content of debt ratings. We show that noninvestment grade subordinated issues are consistently priced too high (the yield is too low), and the reverse is true for some investment grade bonds. We relate this empirical bias to a notching...