We examine whether performance-sensitive debt (PSD) is used to reduce hold-up problems in long-term lending relationships. We find that the use of PSD is more common in the presence of a long-term lending relationship and if the borrower has fewer financing alternatives available. In syndicated...

We propose a tractable model of a firm's dynamic debt and equity issuance policies in the presence of asymmetric information. Because "investment-grade" firms can access debt markets, managers who observe a bad private signal can both conceal this information and shield shareholders from...

In this paper, we revisit a frequently employed simplification within the WACC approach that company cost of capital kV is supposed to be invariant to the debt ratio and therefore equal to the unlevered cost kU . Even though we know from Miles and Ezzell (1980) that kV formally differs from kU ,...

The frequency with which firms adjust output prices helps explain persistent differences in capital structure across firms. Unconditionally, the most exible-price firms have a 19% higher long-term leverage ratio than the most sticky-price firms, controlling for known determinants of capital...

It is well-known that cash-flow business taxes with full loss-offset, and their present-value equivalents, are neutral with respect to firms' investment decisions when firms are riskneutral and there are no distortions. We study the effects of cash-flow business taxation when there is bankruptcy...

This paper examines whether debt renegotiation mitigates the agency costs of asset substitution. Inspired by the studies of Mella-Barral and Perraudin (1997) and Leland (1998), we have developed an analytical continuous time model of a firm that has the option to switch to a higher risk activity...