Does performance-sensitive debt mitigate debt overhang?
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
| Original language | English |
|---|---|
| Article number | 104203 |
| Journal / Publication | Journal of Economic Dynamics and Control |
| Volume | 131 |
| Online published | 4 Aug 2021 |
| Publication status | Published - Oct 2021 |
Link(s)
Abstract
We model the expansion decision of a levered firm. Straight debt distorts both timing and scaling: the firm invests less and later than its all-equity financed counterpart. The inclusion of performance sensitivity in the debt contract mitigates such distortions. Moreover, performance sensitivity is consistent with firm value maximization within a standard trade-off theory of capital structure. As a result, our model rationalizes the widespread use of performance sensitive debt (PSD), especially amongst fast growth firms.
Research Area(s)
- Capital structure, Debt overhang, Performance-sensitive Debt, Real options
Bibliographic Note
Full text of this publication does not contain sufficient affiliation information. With consent from the author(s) concerned, the Research Unit(s) information for this record is based on the existing academic department affiliation of the author(s).
Citation Format(s)
Does performance-sensitive debt mitigate debt overhang? / Bensoussan, Alain; Chevalier-Roignant, Benoît; Rivera, Alejandro.
In: Journal of Economic Dynamics and Control, Vol. 131, 104203, 10.2021.
In: Journal of Economic Dynamics and Control, Vol. 131, 104203, 10.2021.
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review
