CBE Seminar: Thomas Geelen Information Dynamics and Debt Maturity
The Center for Business Economics is pleased to invite you to a seminar with Thomas Geelen, Copenhagen Business School.
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- E-209/210
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Information Dynamics and Debt Maturity
Abstract: I develop a dynamic model of financing decisions and optimal debt maturity choice in which creditors face adverse selection and learn about the firm’s quality from news. In equilibrium, shareholders may choose to postpone debt issuance to reduce adverse selection and improve the pricing of newly issued debt. Over time, the benefits of learning decrease and zero-leverage firms eventually decide to issue debt. Because shorter maturity debt is less sensitive to information, younger firms issue shorter maturity debt to alleviate adverse selection while mature firms issue longer maturity debt, leading to a life-cycle theory of debt maturity.