Abstract

http://ssrn.com/abstract=2085147
 
 

Citations (21)



 
 

Footnotes (27)



 


 



A Theory of Debt Maturity: The Long and Short of Debt Overhang


Douglas W. Diamond


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Zhiguo He


University of Chicago - Booth School of Business, and NBER

June 2012

NBER Working Paper No. w18160

Abstract:     
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.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Number of Pages in PDF File: 48

working papers series





Date posted: June 16, 2012  

Suggested Citation

Diamond, Douglas W. and He, Zhiguo, A Theory of Debt Maturity: The Long and Short of Debt Overhang (June 2012). NBER Working Paper No. w18160. Available at SSRN: http://ssrn.com/abstract=2085147

Contact Information

Douglas W. Diamond (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7283 (Phone)
HOME PAGE: http://faculty.chicagobooth.edu/douglas.diamond/

Chicago Booth School of Business Logo

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Zhiguo He
University of Chicago - Booth School of Business, and NBER ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
HOME PAGE: http://faculty.chicagobooth.edu/zhiguo.he/pubs.html

Chicago Booth School of Business Logo

Feedback to SSRN


Paper statistics
Abstract Views: 263
Downloads: 21
Citations:  21
Footnotes:  27

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.360 seconds