(Debt) Overhang: Evidence from Resource Extraction

Michael Wittry ()

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: I study the empirical importance of debt overhang using a unique dataset on resource extraction firms, which provides ex ante measures of investment opportunities and important variation in the terms of a firm's obligations. In particular, unsecured reclamation liabilities create overhang that is costly to resolve and induces firms to forgo and postpone positive NPV investments. Traditional debt, in contrast, imposes few overhang-related investment distortions. These results show that: (i) the overhang problem is potentially large and applies more broadly to a firm's non-debt liabilities; and (ii) overhang problems associated with traditional debt can be avoided through contracting and debt composition.

JEL-codes: D22 G30 G32 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-cfn
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2019-03-031

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