This paper shows that long debt maturities eliminate equityholders' incentives to reduce leverage when the firm performs poorly. By contrast, short debt maturities commit equityholders to such leverage reductions. However, shorter debt maturities also lead to higher transactions costs when...

We highlight the impact of capital quality, i.e., the depreciation rate of capital assets, on firms' investment behavior, endogenous output price dynamics, and industry equilibrium outcomes. To rigorously examine this question, a continuous-time model of dynamic capacity investment under...