Date of Award
Doctor of Philosophy (PhD)
Urban J. Jermann
This dissertation consists of two chapters that address questions in finance and macroeconomics with quantitative theories.
In the first chapter, I study how financial covenants influence firm behavior by state-contingently allocating decision rights to creditors. I develop a model with long-term debt where shareholders cannot commit to not dilute creditors in the future with new debt issuances and risky investments. Creditors intervene upon violations of covenant restrictions and restructure the debt without ex ante commitment. My quantitative analysis suggests that financial covenants significantly increase debt capacity, investment and ex ante firm value by disciplining shareholders. Nonetheless, I show that lenders' inability to commit to a restructuring plan severely impairs contractual efficiency. A further tightening of covenants, relative to the calibrated benchmark, improves their value.
In the second chapter, I investigate the impact of bank capital requirements in a business cycle model with corporate debt choice. Compared to non-bank investors, banks provide restructurable loans that reduce firm bankruptcy losses and enhance production efficiency. Raising capital requirements reduces deposit insurance distortions but also deposit tax shields. As a result, firms cut back on both bank and non-bank borrowing while going bankrupt more frequently. Implementing an optimal capital ratio of 11 percent in the US produces limited marginal impacts on aggregate quantities and welfare.
Xiang, Haotian, "Essays In Finance And Macroeconomics" (2019). Publicly Accessible Penn Dissertations. 3361.