IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v23y2023i5p887-900.html
   My bibliography  Save this article

The timing of debt renegotiation and its implications for irreversible investment and capital structure

Author

Listed:
  • Zhaojun Yang
  • Nanhui Zhu

Abstract

This paper analyzes the impact of a single round of debt renegotiation on investment and financing decisions. We produce an analytical proof for the widely-used assertion that optimal renegotiation time is common default time. We show that debt renegotiation accelerates investment and increases the investment option value by around 15%. Renegotiation surplus increases with project risk but decreases with sunk cost. Investment option value has an inverted U-shaped link with debtholders' bargaining power. If tax rate is moderate, optimal leverage with renegotiation is greater than that without renegotiation but if it is sufficiently high, the opposite holds true.

Suggested Citation

  • Zhaojun Yang & Nanhui Zhu, 2023. "The timing of debt renegotiation and its implications for irreversible investment and capital structure," Quantitative Finance, Taylor & Francis Journals, vol. 23(5), pages 887-900, May.
  • Handle: RePEc:taf:quantf:v:23:y:2023:i:5:p:887-900
    DOI: 10.1080/14697688.2023.2186260
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/14697688.2023.2186260
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/14697688.2023.2186260?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dong, Linjia & Nishihara, Michi & Yang, Zhaojun, 2023. "Two-stage investment, loan guarantees and share buybacks," Journal of Economic Dynamics and Control, Elsevier, vol. 156(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:23:y:2023:i:5:p:887-900. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.