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A Theory of Debt Maturity: The Long and Short of Debt Overhang / Douglas W. Diamond, Zhiguo He.
- Format:
- Book
- Author/Creator:
- Diamond, Douglas W.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w18160.
- NBER working paper series no. w18160
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2012.
- Summary:
- Debt maturity influences debt overhang: the reduced incentive for highly- levered borrowers to make real investments because some value accrues to debt. Reducing maturity can increase or decrease overhang even when shorter-term debt's value depends less on firm value. Future overhang is more volatile for shorter-term debt, making future investment incentives volatile and influencing immediate investment incentives. With immediate investment, shorter-term debt typically imposes lower overhang; longer-term debt can impose less if firm value is more volatile in bad times. For future investments, reduced correlation between the value of assets-in-place and profitability of investment increases the overhang of shorter-term debt.
- Notes:
- Print version record
- June 2012.
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