I develop a dynamic model of financing decisions and optimal debt maturity choice in which creditors face adverse … selection and learn about the firm's quality from news. In equilibrium, shareholders may choose to postpone debt issuance to … reduce adverse selection and improve the pricing of newly issued debt. Over time, the benefits of learning decrease and zero …

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 …