Information Dynamics and Debt Maturity
Revise and Resubmit at the Journal of Finance
Abstract: I develop a dynamic model of financing decisions and optimal debt maturity choice in which creditors face adverse selection and learn about the firm’s quality from news. In equilibrium, shareholders may choose to postpone debt issuance to reduce adverse selection and improve the pricing of newly issued debt. Over time, the benefits of learning decrease and zero-leverage firms eventually decide to issue debt. Because shorter maturity debt is less sensitive to information, younger firms issue shorter maturity debt to alleviate adverse selection while mature firms issue longer maturity debt, leading to a life-cycle theory of debt maturity.
- Cubist Systematic Strategies PhD Candidate Award for Outstanding Research at WFA 2018, Colorado Finance Summit 2018 Best PhD Program Paper, and SFI Best Doctoral Paper Award 2017
Debt Maturity and Lumpy Debt
Abstract: I develop a dynamic capital structure model in which shareholders determine a firm's leverage ratio, debt maturity, and default strategy. In my model, the firm's debt matures all at once. Therefore, after repaying the principal shareholders own all the firm's cash flows and can pick a new capital structure. The possibility to alter the capital structure at maturity gives shareholders the incentive to issue finite maturity debt and allows me to study firms' joint choice of leverage and debt maturity. I also extend my model by allowing for time-varying capital supply to study time-variation in firms' joint choice of leverage and debt maturity.
- SFI Best Doctoral Paper Award 2015
Debt, Innovation, and Industry Dynamics (Work in progress)
with Jakub Hajda
and Erwan Morellec