Two Tales of Debt / Amir Kermani, Yueran Ma.

Format:

Book

Author/Creator:

Kermani, Amir.

Contributor:

National Bureau of Economic Research.

Ma, Yueran.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27641.

NBER working paper series no. w27641

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We analyze the heterogeneous nature of corporate debt contracts, some focusing on liquidation values of discrete assets whereas others on going-concern values of the business. Using hand-collected data on firm attributes, we present several findings. First, firms on average have limited liquidation values. Second, companies with lower liquidation values have more debt backed by going-concern values and more intensive monitoring of firm performance. They have higher interest rates only for debt against discrete assets. Third, secured debt is not always tied to liquidation values of discrete assets. We present a model that matches the empirical findings, which demonstrates how creditor monitoring and covenants facilitate borrowing well beyond liquidation values.

Notes:

Print version record

August 2020.