Debt structure and debt overhang

Gan, Liu and Xia, Xin and Zhang, Hai (2022) Debt structure and debt overhang. Journal of Corporate Finance, 74. pp. 1-46. 102200. ISSN 0929-1199 (

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We study the impact of heterogeneous debt structures on corporate financing and investment decisions in a dynamic trade-off model. The issuance of bank debt along with market debt accelerates investment and mitigates the ex-post debt overhang relative to exclusive market debt structures. A growth firm optimally increases its reliance on bank debt and decreases its usage of market debt when it has fewer valuable growth opportunities, its asset volatility is higher, its bankruptcy cost is lower, or it faces a low tax rate environment. We identify the non-monotonic effects of the cyclicality of growth opportunities on firms' optimal debt composition.


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