Macroeconomic Risk and Debt Overhang*
Name
e6d31f5d91399919dc61d44f7c493ce7846d.pdf
Size
469.61 KB
Format
Adobe PDF
Checksum (MD5)
d5fbc215966bca37dfbf676c5ff6f35f
Author(s)
Chen, Hui
Manso, Gustavo
Date Issued
December 2016
Journal
Review of Corporate Finance Studies
Publisher
Oxford University Press (OUP)
Citation
Chen, Hui, and Gustavo Manso. “Macroeconomic Risk and Debt Overhang*.” The Review of Corporate Finance Studies 6, 1 (December 2016): 1–38 © 2016 The Author
Version
Author's final manuscript
Abstract
Since corporate debt tends to be riskier in recessions, transfers from equity holders to debt holders that accompany corporate decisions also tend to concentrate in recessions. Such systematic risk exposures of debt overhang have important implications for corporate investment and financing decisions, and for the ex ante costs of debt overhang. Using a calibrated dynamic capital structure model, we show that the costs of debt overhang become higher in the presence of macroeconomic risk. We also provide several new predictions on how the cyclicality of a firm's assets in place and growth options affect its investment and capital structure decisions.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1093/RCFS/CFW007
