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Working Paper
A Model of Endogenous Debt Maturity with Heterogeneous Beliefs
Darst, Matt; Refayet, Ehraz (2017-05)
This paper studies optimal debt maturity in an economy with repayment enforcement frictions and investors disagree about repayment probabilities. The optimal debt maturity choice is a mix of long- and short-term debt securities. Spreading risky debt claims on cash flows over time allows debt to be priced by investors most willing to hold risk at each point in time, thereby increasing investment and output. By contrast, a single maturity, either all long- or short-term, will be priced by investors less willing to hold risk, which reduces investment and output. The model provides a novel ...
Finance and Economics Discussion Series , Paper 2017-057

Working Paper
IPOs and Corporate Taxes
Dobridge, Christine L.; Lester, Rebecca; Whitten, Andrew (2021-09-07)
How does going public affect firms’ tax obligations and tax planning? Using a panel of U.S. corporate tax return data from 1994 to 2018, we compare tax payments for firms that completed an IPO with those that filed for an IPO but later withdrew and remained private. We find that in the years immediately following IPO completion, firms have a higher probability of paying taxes and pay more U.S. tax. The effects occur regardless of tax status in the pre-IPO period and are not explained by statutory limitations imposed on the use of pre-IPO losses. Higher income reported for financial ...
Finance and Economics Discussion Series , Paper 2021-058

Working Paper
A Spanner in the Works: Restricting Labor Mobility and the Inevitable Capital-Labor Substitution
Kannan, Bharadwaj; Pinheiro, Roberto; Turtle, Harry (2022-11-08)
We model an environment with overlapping generations of labor to show that policies restricting labor mobility increase a firm's monopsony power and labor turnover costs. Subsequently, firms increase capital expenditure, altering their optimal capital-labor ratio. We confirm this by exploiting the statewide adoption of the inevitable disclosure doctrine (IDD), a law intended to protect trade secrets by restricting labor mobility. Following an IDD adoption, local firms increase capital expenditure (capital-labor ratio) by 3.5 percent (5.5 percent). This result is magnified for firms with ...
Working Papers , Paper 22-30

Working Paper
The Real Effects of Credit Line Drawdowns
Meisenzahl, Ralf R.; Berrospide, Jose M. (2015-02-04)
Do firms use credit line drawdowns to finance investment? Using a unique dataset of 467 COMPUSTAT firms with credit lines, we study the purpose of drawdowns during the 2007-2009 financial crisis. Our data show that credit line drawdowns had already increased in 2007, precisely when disruptions in bank funding markets began to squeeze aggregate liquidity. Consistent with theory, our results confirm that firms use drawdowns to sustain investment after an idiosyncratic liquidity shock. Using an instrumental variable approach based on institutional features of credit line contracts, we find that ...
Finance and Economics Discussion Series , Paper 2015-7

Report
Interest rates and the market for new light vehicles
Maccini, Louis J.; Hall, George J.; Copeland, Adam (2015-09-01)
We study the impact of interest rates changes on both the demand for and supply of new light vehicles in an environment where consumers and manufacturers face their own interest rates. An increase in the consumers? interest rate raises their cost of financing and thus lowers the demand for new vehicles. An increase in the manufacturers? interest rate raises their cost of holding inventories. Both channels have equilibrium effects that are amplified and propagated over time through inventories, which serve as a way to both smooth production and facilitate greater sales at a given price. ...
Staff Reports , Paper 741

Working Paper
Debt Maturity and Commitment on Firm Policies
Gamba, Andrea; Saretto, Alessio (2023-04-19)
If firms can issue debt only at discrete dates, debt maturity is an effective device against the commitment problem on debt and investment policies. With shorter maturities, debt dynamics are less persistent and more valuable because upward leverage adjustments are faster and long-run leverage lower. Debt maturities that are relatively shorter than asset maturities increase marginal q, and reduce underinvestment. A decomposition of the credit spread consistent with equilibrium shows that the component due to the commitment problem on future debt issuances is sizeable when leverage and default ...
Working Papers , Paper 2303

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