We investigate the repercussions of credit market mistakes for a firm's borrowing and investment decisions. When credit ratings are relatively optimistic, we find evidence that firms take advantage of inaccuracies by issuing more debt, increasing leverage, rolling over more debt and lengthening...

I study the target leverage and partial adjustment activity of firms that issue convertible bonds. Convertibles may help target adjustment efforts by lowering issuance transaction costs and reducing interest expenses. Nevertheless, convertible debt can increase liabilities for an unknown amount...

The government proposed an unexpected one-time debt-equity swap in China in response to the rapidly growing leverage ratio of non-financial firms after 2008. We study the effects of this policy on the firms' investment decisions and the optimal capital structure in a dynamic model. To...

We study the impact of financial constraints on cross-market arbitrage. We find that financially constrained firms are more likely to conduct debt-financed share repurchases. Such repurchases tend to reduce investments and increase financial distress risks, especially when financially...

In this paper we present a model that demonstrates the effect of debt on cost of capital and value for banks with risky assets. Using a static partial equilibrium setting, both in a steady state and steady growth scenario, we derive a bank- specific valuation metric which separately attributes...