Download or read book Debt Overhang and Investment Efficiency written by Francesca Barbiero and published by . This book was released on 2018 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a pan-European dataset of 8.5 million rms, we nd that rms with high debt overhang invest relatively more than otherwise similar rms if they are operating in sectors facing good global growth opportunities. This eect is robust to controlling for rm xed eects and for country-sector-time xed eects. At the same time, the positive impact of a marginal increase in debt on investment eciency disappears if rm debt is excessive, if it is dominated by short maturities, and during systemic banking crises. Our results are consistent with theories highlighting the disciplining role of debt over equity.
Download or read book EIB Working Papers 2018 08 Debt overhang and investment efficiency written by European Investment Bank and published by European Investment Bank. This book was released on 2019-04-29 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a pan-European data set of 8.5 million firms, this paper finds that firms with high debt overhang invest relatively more than otherwise similar firms if they are operating in sectors facing good global growth opportunities. At the same time, the positive impact of a marginal increase in debt on investment efficiency disappears if firm debt is already excessive, if it is dominated by short maturities, and during systemic banking crises. The results are consistent with theories of the disciplining role of debt, as well as with models highlighting the negative link between agency problems at firms and banks and investment efficiency.
Download or read book Estimating the Efficiency Gains of Debt Restructuring written by Jeremy Bulow and published by World Bank Publications. This book was released on 1994 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: The debt- overhang disincentive may not be as important as the broader problem of debtors' credit constraints in international capital markets. For severely indebted low- income countries, the best strategy is probably to replace nonconcessional debt with new concessional loans.
Download or read book Debt Renegotiation and Debt Overhang written by Yongqiang Chu and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies whether debt renegotiation mitigates debt overhang and improves investment efficiency. Using mergers between lenders participated in the same syndicated loans as natural experiments that exogenously reduce the number of lenders and thus make renegotiation easier, I find that firms affected by the mergers experience more loan renegotiations and increase capital expenditure investment. I also find that the effect is stronger for firms with higher Q, suggesting improved investment efficiency. Further evidence suggests that the effect concentrates on loans without performance pricing provisions and unsecured loans, providing further support that lender mergers improves investment efficiency for firms suffering from debt overhang ex ante.
Download or read book Corporate Debt Overhang and Investment written by Eduardo Borensztein and published by . This book was released on 2018 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates empirically the linkages between corporate debt overhang and investment activity at the firm level for a cross section of large-sized emerging market and developing economies. It analyzes the extent to which investment may be discouraged by high levels of debt that put at risk future profits, as well as firm dimensions that may sharpen the debt-investment link. Using balance sheet data from a broad set of emerging market and developing economy firms, the analysis suggests that corporate debt overhang imposes a sizable effect on investment at the firm level. This linkage is more pronounced for large firms and highly leveraged firms. The analysis also finds evidence of a nonlinear effect, in which debt overhang discourages investment more severely under high levels of indebtedness.
Download or read book Bulgaria written by International Monetary Fund. European Dept. and published by International Monetary Fund. This book was released on 2018-02-21 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This Selected Issues paper investigates the role of debt overhang in explaining weak nonfinancial corporate (NFC) investment in Bulgaria using firm-level data. The study confirms a negative association between measures of debt overhang and investment for Bulgarian NFCs using firm-level data. Bulgaria’s NFCs are the most leveraged among new member states. The findings suggest that high NFC debt overhang could be an important drag on investment. While credit demand is likely to pick up in line with economic activity, high NFC indebtedness could continue to stand in the way of corporate credit recovery. A possible direction for future work is to investigate the existence of different investment cycles across business activities/sectors, and their role in explaining the identified negative relationship. Policies that help reduce the corporate debt overhang could help boost credit and growth. Policy initiatives such as an efficient corporate debt restructuring framework and tax measures could help corporate deleveraging. The findings suggest that high corporate debt could be an important drag on investment.
Download or read book Handbook of the Economics of Finance written by G. Constantinides and published by Elsevier. This book was released on 2003-11-04 with total page 698 pages. Available in PDF, EPUB and Kindle. Book excerpt: Arbitrage, State Prices and Portfolio Theory / Philip h. Dybvig and Stephen a. Ross / - Intertemporal Asset Pricing Theory / Darrell Duffle / - Tests of Multifactor Pricing Models, Volatility Bounds and Portfolio Performance / Wayne E. Ferson / - Consumption-Based Asset Pricing / John y Campbell / - The Equity Premium in Retrospect / Rainish Mehra and Edward c. Prescott / - Anomalies and Market Efficiency / William Schwert / - Are Financial Assets Priced Locally or Globally? / G. Andrew Karolyi and Rene M. Stuli / - Microstructure and Asset Pricing / David Easley and Maureen O'hara / - A Survey of Behavioral Finance / Nicholas Barberis and Richard Thaler / - Derivatives / Robert E. Whaley / - Fixed-Income Pricing / Qiang Dai and Kenneth J. Singleton.
Download or read book The Mutual Friend written by Miguel Anton and published by . This book was released on 2019 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the influence of simultaneous equity holding by large creditors (dual holders) on investment efficiency in U.S. public firms. Such creditors have stronger incentives and power to monitor firm investment as they have cash flow and control rights from both the debt and the equity side. We provide evidence that dual holders, particularly non-commercial bank dual holders, significantly mitigate over-investment. For high growth firms and those subject to debt overhang, dual holders also alleviate the under-investment problem since they align shareholder and creditor incentives. Equity value increases at the presence of dual holders. Overall the evidence indicates that by improving firm investment efficiency, dual holders not only make creditor investments safer, but also create value for shareholders.
Download or read book Debt Overhang written by Michael D. Wittry and published by . This book was released on 2020 with total page 89 pages. Available in PDF, EPUB and Kindle. Book excerpt: I study the empirical importance of debt overhang using a unique dataset on resource extraction firms, which provides ex ante measures of investment opportunities and important variation in the terms of a firm's obligations. In particular, unsecured reclamation liabilities create overhang that is costly to resolve and induces firms to forgo and postpone positive NPV investments. Traditional debt, in contrast, imposes few overhang-related investment distortions. These results show that: (i) the overhang problem is potentially large and applies more broadly to a firm's non-debt liabilities; and (ii) overhang problems associated with traditional debt can be avoided through contracting and debt composition.
Download or read book The Overhang Cost of Long and Short Term Debt in the Presence of Default Risk written by Van Vu and published by . This book was released on 2013 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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).
Download or read book External Debt and Growth written by Catherine A. Pattillo and published by International Monetary Fund. This book was released on 2002-04 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper assesses the non linear impact of external debt on growth using a large panel data set of 93 developing countries over 1969–98. Results are generally robust across different econometric methodologies, regression specifications, and different debt indicators. For a country with average indebtedness, doubling the debt ratio would reduce annual per capita growth by between half and a full percentage point. The differential in per capita growth between countries with external indebtedness (in net present value) below 100 percent of exports and above 300 percent of exports seems to be in excess of 2 percent per annum. For countries that are to benefit from debt reduction under the current HIPC initiative, per capita growth might increase by 1 percentage point, unless constrained by other macroeconomic and structural economic distortions. Our findings also suggest that the average impact of debt becomes negative at about 160–170 percent of exports or 35–40 percent of GDP. The marginal impact of debt starts being negative at about half of these values. High debt appears to reduce growth mainly by lowering the efficiency of investment rather than its volume.
Download or read book A Theory of Debt Maturity written by Douglas W. Diamond and published by . This book was released on 2012 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Private Investment and External Debt written by Hiranya Mukhopadhyay and published by . This book was released on 1995 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Investment Distortions Caused by Debt Financing written by Nathalie Moyen and published by . This book was released on 2000 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The presence of debt in a firm's capital structure may induce equity claimants to choose an investment policy that is not in the best interest of all claimants. Since Myers (1977) and Jensen and Meckling (1976), the debt overhang and asset substitution investment distortions are well recognized. However, the previous literature did not reach a consensus as to the magnitude of such costs. This paper re-examines the debt overhang problem, but in a framework where the firm is allowed to recapitalize at any point in time and where the investment level rather than the binary operating policy is used to measure the size of the underinvestment caused by debt financing. The debt overhang problem is shown to do little harm to equity claimants. In bad economic conditions when the marginal productivity of capital is low, equity claimants actually benefit from the underinvestment. They only suffer in better economic conditions.
Download or read book Resolving China s Corporate Debt Problem written by Wojciech Maliszewski and published by International Monetary Fund. This book was released on 2016-10-14 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Corporate credit growth in China has been excessive in recent years. This credit boom is related to the large increase in investment after the Global Financial Crisis. Investment efficiency has fallen and the financial performance of corporates has deteriorated steadily, affecting asset quality in financial institutions. The corporate debt problem should be addressed urgently with a comprehensive strategy. Key elements should include identifying companies in financial difficulties, proactively recognizing losses in the financial system, burden sharing, corporate restructuring and governance reform, hardening budget constraints, and facilitating market entry. A proactive strategy would trade off short-term economic pain for larger longer-term gain.
Download or read book Global Waves of Debt written by M. Ayhan Kose and published by World Bank Publications. This book was released on 2021-03-03 with total page 403 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.
Download or read book Financing Energy Efficiency written by Robert P. Taylor and published by World Bank Publications. This book was released on 2008-02-08 with total page 306 pages. Available in PDF, EPUB and Kindle. Book excerpt: While energy efficiency projects could partly meet new energy demand more cheaply than new supplies, weak economic institutions in developing and transitional economies impede developing and financing energy efficiency retrofits. This book analyzes these difficulties, suggests a 3-part model for projectizing and financing energy efficiency retrofits, and presents thirteen case studies to illustrate the issues and principles involved.
