Debt dynamics with fixed issuance costs

Arbeitspapier

We investigate equilibrium debt dynamics for a firm that cannot commit to a future debt policy and is subject to a fixed restructuring cost. We formally characterize equilibria when the firm is not required to repurchase outstanding debt prior to issuing additional debt. For realistic values of issuance costs and debt maturity, the no-commitment policy generates tax benefits that are similar to those obtained by a benchmark policy with commitment. For positive but arbitrarily small issuance costs, there are maturities for which shareholders extract essentially the entire claim to cash-flows.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. WP 2023-01

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Bankruptcy; Liquidation
• Subject: Capital structure ; Debt dynamics ; Commitment ; Issuance costs ; Debt maturity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Benzoni, Luca ; Garlappi, Lorenzo ; Goldstein, Robert S. ; Ying, Chao
• Event: Veröffentlichung
• (who): Federal Reserve Bank of Chicago
• (where): Chicago, IL
• (when): 2023

Further information

• DOI: doi:10.21033/wp-2023-01
• Handle: http://hdl.handle.net/10419/272816
• Last update: 10.03.2025, 11:41 AM CET