How does a creditor’s learning from a firm’s strategic actions affect bankruptcy prediction, debt values, and optimal capital structure? We investigate a Leland (1994) setting augmented by asymmetric information on the firm’s asset value. Observing the firm’s survival of apparently...

We compare two types of reinsurance: excess of loss (EOL) and largest claim reinsurance (LCR), each of which transfers the payment of part, or all, of one or more large claims from the primary insurance company (the cedant) to a reinsurer. The primary insurer’s point of view is documented in...

We propose a novel framework for investigating learning dynamics on a competitive debt market. Observing a firm's survival of apparently distressed periods, the market eliminates asset value estimates that are too low to be consistent with the observed survival. Therefore, the firm's cost of...