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We develop a dynamic model of banking to assess the effects of liquidity and leverage requirements on banks' insolvency … risk. In this model, banks face taxation, flotation costs of securities, and default costs and maximize shareholder value …
Persistent link: https://www.econbiz.de/10011293576
average collateral ratios of their debt, and financially safer firms are less affected by empty creditors. Banks that are not …, banks' business models affect the degree to which they recognise the empty creditor effect. Where banks that monitor their …
Persistent link: https://www.econbiz.de/10012181510
maturity than non-issuer firms do, suggesting an improvement in their bargaining power with banks. In addition, issuer firms …
Persistent link: https://www.econbiz.de/10012614108
power with banks. Issuer firms also reduce the amount of used bank credit, expand their total and fixed assets, and raise …
Persistent link: https://www.econbiz.de/10012419623
A common method of valuing the equity in highly leveraged transactions is the flows-to-equity method. When applying this method various formulas can be used to calculate the time-varying cost of equity. In this paper we show that some commonly used formulas are inconsistent with the assumptions...
Persistent link: https://www.econbiz.de/10008797682
The aim of this paper is to study the impact of the bankruptcy law on financing, investment, default and liquidation 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...
Persistent link: https://www.econbiz.de/10003549848
We argue that the prospect of an imperfect enforcement of debt contracts in default reduces shareholder-debtholder conflicts and induces leveraged firms to invest more and take on less risk as they approach financial distress. To test these predictions, we use a large panel of firms in 41...
Persistent link: https://www.econbiz.de/10010257850
We build a model of investment and financing decisions to study the choice between bonds and bank loans in a firm's marginal financing decision and its effects on corporate investment. We show that firms with more growth options, higher bargaining power in default, operating in more competitive...
Persistent link: https://www.econbiz.de/10010258730
Using a dynamic model of financing, investment, and macroeconomic risk, we investigate when firms sell assets to fund investments (financing asset sales) across the business cycle. Equity financed investment transfers wealth from equity to debt because asset volatility declines and earnings...
Persistent link: https://www.econbiz.de/10010337958
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...
Persistent link: https://www.econbiz.de/10012612803