minimum effort coordination games stochastic potential and logit equilibrium abstract this paper revisits the minimum effort coordination game with a continuum of pareto ranked nash equilibria noise is introduced via a logit probabilistic choice function the resulting logit equilibrium distribution of decisions is unique and maximizes a stochastic potential function in the limit as the noise vanishes the distribution converges to an outcome that is analogous to the risk dominant outcome for 2 2 games in accordance with experimental evidence logit equilibrium efforts decrease with increases in effort costs and the number of players even though these parameters do not affect the nash equilibria journal of economic literature classification numbers c72 c92

electoral outcomes with probabilistic voting and nash social welfare maxima abstract this paper provides unexpected support to nash s view of how bargaining determines the social choice we first present a spatial model of electoral competition with probabilistic voting and a very close relation between voters preferences and their choice probabilities the outcome of the electoral competition game is then shown to be precisely the social alternative that maximizes a nash type social welfare function theorem 1 this electoral outcome is also interpreted as a unanimity likelihood maximum corollary 1 within our framework existence and uniqueness of such an outcome are guaranteed corollaries 2 and 3

boundedly rational nash equilibrium a probabilistic choice approach we propose an equilibrium for n person finite games based on bounded rationality using the legit model of discrete choice theory at equilibrium each player uses appropriate choice probabilities given those used by the others rationality is parameterized on a continuum from complete rationality to uniform random choice results on the existence of equilibrium and on convergence to nash as rationality becomes perfect are similar to results due to mckelvey and palfrey we identify conditions such that for a given rationality parameter range the path of choices over time when the players use fictitious play converges to equilibrium c 1997 academic press

costly external finance corporate investment and the subprime mortgage credit crisis abstract we study the effect of the recent financial crisis on corporate investment the crisis represents an unexplored negative shock to the supply of external finance for non financial firms corporate investment declines significantly following the onset of the crisis controlling for firm fixed effects and time varying measures of investment opportunities consistent with a causal effect of a supply shock the decline is greatest for firms that have low cash reserves or high net short term debt are financially constrained or operate in industries dependent on external finance to address endogeneity concerns we measure firms financial positions as much as four years prior to the crisis and confirm that similar results do not follow placebo crises in the summers of 2003 2006 nor do similar results follow the negative demand shock caused by september 11 2001 the effects weaken considerably beginning in the third quarter of 2008 when the demand side effects of the crisis became apparent additional analysis suggests an important precautionary savings motive for seemingly excess cash that is generally overlooked in the literature

optimal capital structure a multi period programming model for use in financial planning abstract this paper describes a multi period chance constrained mathematical programming model to compute for each period the firm s optimal debt to equity ratio and the optimal maturity distribution of its debt the model assumes that the firm s objective is to maximize total value of the firm and that the firm operates in a world of uncertainty with corporate income taxes and bankruptcy costs finally the actual coupon rate paid by the firm which is commensurate to the risk of default is endogenously determined by the model

seniority and maturity of debt contracts abstract this paper provides a model of how borrowers with private information about their credit prospects choose seniority and maturity of debt increased short term debt leads lenders to liquidate too often it also increases the sensitivity of financing costs to new information although better than average borrowers desire information sensitivity the model implies that short term debt will be senior to long term debt and that long term debt will allow the issue of additional future senior debt the model also has implications on the structure of leveraged buyouts and on how various types of lenders respond to potential defaults

short term corporate debt around the world short term corporate debt as a proportion of total debt issued by public firms varies greatly across countries between 28 in the united states and 78 in china this paper argues that the interaction between information asymmetry and legal protection of creditors is an important determinant of debt maturity when short term debt plays a dual role as signaling and commitment devices a reduction in information asymmetry has a larger impact on debt maturity when creditor rights are weaker we find empirical support for this prediction using firm level data from 45 countries around the world

the theory and measurement of the net benefits of multinationality the case of the international petroleum industry internalization is one of the most important factors for foreign direct investment and multinationality going multinational brings some gains the empirical evidence presented provides an objective quantitative measure of the gains of being a multinational firm in the petroleum refining industry it is estimated that multination ality increases scale efficiency by approximately 3 and reduces business risk by approximately 43 however the gains of multinationality cannot be attained without incurring some costs the cost of expanding the firs s operation beyond its national boundaries is estimated to be approximately a 10 reduction in the firm s overall economic efficiency

the determinants of the maturity of corporate debt issues we document the determinants of the term to maturity of 7 369 bonds and notes issued between 1982 and 1993 our main finding is that large firms with investment grade credit ratings typically borrow at the short end and at the long end and of the maturity spectrum while firms with speculative grade credit ratings typically borrow in the middle of the maturity spectrum this pattern is consistent with the theory that risky firms do not issue short term debt in order to avoid inefficient liquidation but are screened out of the long term debt market because of the prospect of risky asset substitution traditionally capital structure research has focused on how much of a firm s future cash flows should be paid out to debtholders instead of equityholders an equally important issue is when future cash flows should be paid out to debtholders a firm that finances its projects with short term debt risks serious financial difficulty if the debt cannot be extended similarly a firm that finances its activities with long term debt can sacrifice profits by needlessly risking mismanagement of resources after cash flows are returned from investments but before they are due to debtholders this study investigates the factors that firms consider when choosing the maturity of their liabilities we document the determinants of the maturity of 7 368 public debt issues made by u s corporations between 1982 and 1993 our empirical tests are based on existing theoretical models that relate the maturity of a firm s borrowings to the riskiness of its cash flows the time until investments pay off the quality of information held by outsiders the expected

the evolution of debt policies new evidence from business startups abstract we investigate the evolution of entrepreneurial firms debt policies over a period of 15 years after startup considering leverage debt specialization debt maturity and debt granularity our analysis is based on a unique sample covering all non financial belgian firms founded between 1996 and 1998 we find that the debt policy of entrepreneurial firms is remarkably stable over time the debt policy in the initial year of operation is a very important determinant of future debt policies even after controlling for traditional contemporaneous determinants the founder ceo has an important impact on the stability of debt policies the influence of initial debt policies on future debt policies is significantly reduced when the founder ceo is replaced or when s he dies combined our findings support imprinting theory

why are us firms using more short term debt abstract we show that corporate use of long term debt has decreased in the us over the past three decades and that this trend is heterogeneous across firms the median percentage of debt maturing in more than 3 years decreased from 53 in 1976 to 6 in 2008 for the smallest firms but did not decrease for the largest firms the decrease in debt maturity was generated by firms with higher information asymmetry and new firms issuing public equity in the 1980s and 1990s finally we show that demand side factors do not fully explain this trend and that public debt markets supply side factors play an important role our findings suggest that the shortening of debt maturity has increased the exposure of firms to credit and liquidity shocks

executive compensation and the maturity structure of corporate debt executive compensation influences managerial risk preferences through executives portfolio sensitivities to changes in stock prices delta and stock return volatility vega large deltas discourage managerial risk taking while large vegas encourage risk taking theory suggests that short maturity debt mitigates agency costs of debt by constraining managerial risk preferences we posit and find evidence of a negative positive relation between ceo portfolio deltas vegas and short maturity debt we also find that short maturity debt mitigates the influence of vega and delta related incentives on bond yields overall our empirical evidence shows that short term debt mitigates agency costs of debt arising from compensation risk

on the relevance of debt maturity structure in this paper we present a tax induced framework to analyze debt maturity problems we show that under some modifications of the existing u s tax code debt maturity is irrelevant even in the presence of taxes and bankruptcy costs that yield an optimal capital structure if this restrictive structure is relaxed and assuming the miller 15 equilibrium does not prevail tax reasons would usually imply the existence of an optimal debt maturity structure if there exists a gain from leverage then an increasing term structure of interest rates adjusted for default risk results in long term debt being optimal a decreasing term structure under similar circumstances renders short term debt optimal in the absence of agency costs a miller 15 type result emerges at equilibrium and irrelevance prevails we also argue that agency costs could again reverse the irrelevance and imply a firm specific optimal debt maturity structure there has been extensive discussion in the literature concerning the existence of an optimal debt maturity structure kraus 13 states without proof that efficient capital markets preclude the existence of an optimal debt maturity stiglitz 20 demonstrates the irrelevance of debt maturity but in an economic environment in which the entire financing decision is irrelevant due to the absence of taxes and bankruptcy costs in contrast morris 16 argues that the issuance of short term debt can reduce the risk to stockholders and thereby increase equity value if the covariance between the net operating income and future interest rates is positive this result by morris is obtained even in the absence of taxes and when there is no probability of default the discrepancy between morris and stiglitz arises because morris uses the bogue and roll 31 multiperiod capital asset pricing model to incorporate uncertain future interest rates which implicitly assumes that investors cannot diversify away intertem

a theory of multiperiod debt structure we develop a theory of multiperiod debt structure a simple trade off between the termination threat required to make debt repayments incentive compatible and the desire to avoid early liquidation determines the number of repayments their timing and amounts as firms increase their borrowing they add periodic risky repayments from the back of the maturity structure with the time between repayments increasing in cash flow risk cash flow growth or a significant risk free cash flow component limits the number of risky repayments firms with a significant risk free cash flow component choose dispersed maturity profiles with smaller relatively safe repayments every period rather than riskier periodic repayments

probabilistic choice and procedurally bounded rationality abstract we derive a family of probabilistic choice models including the multinomial logit model from a microeconomic model in which the decision maker has to make some effort in order to implement any desired outcome the disutility of this effort enters the decision maker s goal function in an additively separable way a particular disutility function yielding the multinomial logit as a special case is characterized axiomatically the present approach naturally leads to a normalization of the achieved utility with respect to the number of alternatives the approach also applies to continuum choice sets in euclidean spaces and provides a microeconomic foundation for logit type quantal response models in game theory

the impact of climate risk on firm performance and financing choices an international comparison increasingly adverse climatic conditions have created greater systematic risk for companies throughout the global economy few studies have directly examined the consequences of climate related risk on financing choices by publicly listed firms across the globe we attempt to do so using the global climate risk index compiled and published by germanwatch kreft eckstein 2014 which captures at the country level the extent of losses from extreme weather events as expected we find the likelihood of loss from major storms flooding heat waves etc to be associated with lower and more volatile earnings and cash flows consistent with policies that attempt to moderate such effects we show that firms located in countries characterized by more severe weather are likelier to hold more cash so as to build financial slack and thereby organizational resilience to climatic threats those firms also tend to have less short term debt but more long term debt and to be less likely to distribute cash dividends in addition we find that certain industries are less vulnerable to extreme weather and so face less climate related risk our results are robust to using an instrumental variable approach a propensity score matched sample and path analysis and remain unchanged when we consider an alternative measure of climate risk finally our conclusions are invariant to the timing of financial crises that can affect different countries at different times

does the source of capital affect capital structure prior work on leverage implicitly assumes capital availability depends solely on firm characteristics however market frictions that make capital structure relevant may also be associated with a firm s source of capital examining this intuition we find firms that have access to the public bond markets as measured by having a debt rating have significantly more leverage although firms with a rating are fundamentally different these differences do not explain our findings even after controlling for firm characteristics that determine observed capital structure and instrumenting for the possible endogeneity of having a rating firms with access have 35 more debt copyright 2006 oxford university press

the maturity structure of corporate debt we provide an empirical examination of the determinants of corporate debt maturity our evidence offers strong support for the contracting cost hypothesis firms that have few growth options are large or are regulated have more long term debt in their capital structure we find little evidence that firms use the maturity structure of their debt to signal information to the market the evidence is consistent however with the hypothesis that firms with larger information asymmetries issue more short term debt we find no evidence that taxes affect debt maturity

debt maturity and the cost of bank loans abstract this study explores the extent to which a firm s debt maturity structure affects the cost of bank loans by examining the u s syndicated loans from 1990 and 2014 we find that debt maturity structure is a major determinant of loan spreads after accounting for firm and loan specific variables and firm and year fixed effects a one standard deviation increase in the ratio of short term debt to total assets is associated with an increase of 11 44 basis points in loan spread representing an additional 0 644 million in interest expenses the results support the rollover risk hypothesis which predicts that short term debts intensify the shareholder and bondholder conflicts and lead to greater credit risk in addition high growth firms experience significantly smaller increases in their loan spreads than low growth firms when the short term debt ratio increases this finding is consistent with the asset substitution theory that short term debt mitigates the managerial shareholders risk taking incentives leading to a decrease in firm risk our results remain strong when we use alternative short term debt proxies address endogeneity concerns and perform various robustness tests