We show that short-term debt in a firm’s optimal capital structure reduces investment under asymmetric information. Investors’ interpretation of underinvestment as a positive signal about the quality of the assets in place allows the equity holders to profit from short-term debt repricing at...

Short-term corporate debt as a proportion of total debt issued by public firms varies greatly across countries, between 28% in the U.S. and 78% in China. This paper argues that the interaction between information asymmetry and legal protection of creditors is an important determinant of debt...

We explore the effect of financial development on corporate capital structure and the tightness of financial constraints that firms face. We employ an econometric technique which allows us to explicitly test for convergence in capital structure. This technique increases the power of our...