commonly used formulas are inconsistent with the assumptions about the debt plan. We show that the error resulting from using … which captures the effects of a time-varying fixed debt plan, expensive debt, and costs of financial distress, and discuss …

decisions of firms. We build a model in which the firm has the opportunity to get into debt to finance an investment whose … return is stochastic. Shareholders and bondholders bargain the amount of debt and the level of the coupon. Because of …

We argue that the prospect of an imperfect enforcement of debt contracts in default reduces shareholder … predictions, we use a large panel of firms in 41 countries with heterogeneous debt enforcement characteristics. Consistent with … our model, we find that the relation between debt enforcement and firms' investment and risk depends on the firm …

investments (financing asset sales) across the business cycle. Equity financed investment transfers wealth from equity to debt …, hence, transfer wealth back from debt to equity. Exploring the dynamics of the heretofore overlooked “asset sale versus …

Lending relationships matter for firm financing. In a model of debt dynamics, we study how lending relationships are … formed and how they impact leverage and debt maturity choices. In the model, lending relationships evolve through repeated … interactions between firms and debt investors. Stronger lending relationships lead firms to adopt higher leverage ratios, issue …

Recent empirical studies show that innovative firms heavily rely on debt financing. Debt overhang implies that debt … hampers investment by incumbents. We show that a second effect of debt is that it stimulates entry of new firms and, therefore … demonstrate that this second effect always dominates, so that debt fosters innovation and growth at the aggregate level. Our paper …