The Overhang Cost Of Long And Short Term Debt In The Presence Of Default Risk
Download and Read The Overhang Cost Of Long And Short Term Debt In The Presence Of Default Risk full books in PDF, ePUB, and Kindle. Read online free The Overhang Cost Of Long And Short Term Debt In The Presence Of Default Risk ebook anywhere anytime directly on your device. We cannot guarantee that every ebooks is available!
The Overhang Cost of Long and Short Term Debt in the Presence of Default Risk
Author | : Van Vu |
Publisher | : |
Total Pages | : 45 |
Release | : 2013 |
Genre | : |
ISBN | : |
Download The Overhang Cost of Long and Short Term Debt in the Presence of Default Risk Book in PDF, Epub and Kindle
This research studies the implications of short term debt for firm investment decisions on a sample of U.S. non-financial firms from 1985-2011. We argue that short term debt does not always help to reduce the overhang cost of leverage as is the case in Myers (1977) model. Our empirical results show that short term debt has a negative effect on subsequent investment, which is further amplified in the presence of high default risk. Moreover, a high proportion of short term debt also intensifies the negative impact of default risk on investment. This finding is consistent with our argument that short term debt overhang becomes more dominant than long term debt overhang when the firm faces high risk of bankruptcy. This finding provides another explanation for corporate failures during the 2007-2009 crisis in the U.S. It is the prolonged implications of the under-investment problem that delay recovery, and this problem is more severe for firms with short term debt because short term debt intensifies the negative impact of financial distress on firm investments. Finally, our results provide support for the model in Diamond and He (2011).
The Overhang Cost of Long and Short Term Debt in the Presence of Default Risk Related Books
Pages: 45
Pages: 51
Pages: 0
Pages: 54
Pages: 30