One of the most important discussions in economic research is about how to provide the right incentives to individuals. Usually when a regulator defines a rule, it has to deal with some tradeoff. This paper proposes to study a specific trade-off that emerges with the possibility of reversal of...

We provide causal empirical evidence that, even among publicly traded firms that seemingly suffer less severe information asymmetries, some firms experience hold-up problems in debt financing. Based on the prediction in Rajan (1992), we examine how changes in the ratio of short-term bank loans...

This paper examines why non-financial publicly traded firms knowingly issue wealth destroying Rule 144A debt, which is associated with a negative announcement return and a higher yield. We provide a plausible “demand-side” explanation (i.e. last-resort debt financing) for the motivation for...

Private firm financing, given the far-reaching importance of non-publicly traded companies for global output and employment, is still a relatively underexplored area. Since the seminal work of Petersen and Rajan (1994), only a small branch of research into private firms' cost of debt has been...

Firms reduce investment to avoid costly violations of financial covenants, most of which are based on earnings. Empirically, I show that a 25% drop in earnings implies a 15% decrease in investment for the median listed US firm due to the reduced distance to the covenant threshold. To quantify...

The main purpose of this study is to examine the determinants of the corporate choice between different forms of debt financing. By analyzing the most comprehensive sample of U.S. corporate debt issues to date, I find that firms that issue 144A debt have significantly lower credit quality and...

I provide novel evidence that institutional investors, by influencing the maturity structure of corporate debt, play an active monitoring role. First, I find that institutional ownership is positively related to short-term debt and this relationship is not only statistically significant, but...

The purpose of this paper is to find out if firms that operate with debt free balance sheet are rewarded more by the investors at large. For this we form portfolios of debt free firms and compare their performance with performance of matching portfolios of leveraged firms from the same industry...

This study reinvestigates the relationship between financial leverage and firm characteristics in a cross-sectional setting and a panel setting. Monte-Carlo simulation-based inference results confirm the finding of Barraclough (2007) that a cross-sectional multiple regression model sharing...