Information Dynamics and Debt Maturity


Thomas Geelen
Thomas Geelen
  • Speaker
Swiss Finance Institute

Event Information

Type
Other
Programme
Finance
Date
Tue. 13 Feb. 2018
Contact
Myra Lissenberg
Time
10:00-11:30
Location
H17-02


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.

Myra Lissenberg
Myra Lissenberg
  • Coordinator