Two Tales of Debt
We analyze the heterogeneous nature of corporate debt contracts, some focusing on liquidation values of discrete assets whereas others on going-concern values of the business. Using hand-collected data on firm attributes, we present several findings. First, firms on average have limited liquidation values. Second, companies with lower liquidation values have more debt backed by going-concern values and more intensive monitoring of firm performance. They have higher interest rates only for debt against discrete assets. Third, secured debt is not always tied to liquidation values of discrete assets. We present a model that matches the empirical findings, which demonstrates how creditor monitoring and covenants facilitate borrowing well beyond liquidation values.
Non-Technical Summaries
- Debt backed by the value of the firm as a going concern, rather than asset-based debt, features prominently in corporate capital...
Related
Conferences
More from NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Retirement and Disability, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
