This paper analyzes optimal financial contracts for an incumbent and potential entrant accounting for prospective asset mergers. Exercising a first-mover advantage, the incumbent increases his share of surplus by issuing public debt that appreciates in the event of merger. Incumbent debt reduces...

This paper examines the optimal mix and priority structure of bank and market debt using a tax shield-bankruptcy cost tradeoff model where the only unique feature of banks is their ability to renegotiate. Closed-form expressions are derived for the values of renegotiable bank debt,...

This paper develops and tests a model of investment that integrates six theories: Tobin's Q, costly external funds, empire building, shirking, debt overhang, and managerial myopia. In contrast to earlier theoretical work that often fails to identify empirically testable hypotheses, we link the...

This paper analyzes the determinants of secondary debt market liquidity, identifying conditions under which trading in competitive markets results in sufficient ownership concentration to induce ex post efficient debt relief. The feasibility of debt relief is path-dependent, hinging upon interim...

We illustrate how a rational agent's motivation changes as one moves from RCTs to settings with discretionary choice. A distinguishing characteristic of discretion is due diligence: Before choosing treatment status, agents acquire information (signals). This alters motivation, with due diligence...

We analyze debt choice in light of taxes and moral hazard. The model features an infinite sequence of nonzero-sum stochastic differential games between equity and debt. Closed-form expressions are derived for all contingent-claims. If equity can increase volatility without reducing asset drift,...

regarding leverage ratios and announcement effects, and can also explain observed violations of the pecking-order hypothesis.