Investment and capital structure decisions under strategic debt service with positive externalities

Yingxian Tan, Pengfei Luo, Jinqiang Yang and Aifan Ling

Finance Research Letters, 2020, vol. 33, issue C

Abstract: In this paper, we develop a continuous-time model of strategic debt service (SDS, henceforth) with positive externalities, and examine the impact of positive externalities on investment and financing polices. A key novel feature in our model is that the creditors only receive debt restructuring offers, which must be also beneficial to them, provided by the shareholders. In contrast to SDS with negative externalities, we find that the SDS with positive externalities accelerates investment and delays restructuring. Furthermore, the SDS with positive externalities increases firms’ value and gives firms an incentive to issue more debt in capital structure.

Keywords: Investment; Capital structure; Strategic debt service; Positive externalities (search for similar items in EconPapers)
JEL-codes: G13 G31 G32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:33:y:2020:i:c:s1544612319301540

DOI: 10.1016/j.frl.2019.05.011

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