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Private versus Public Debt: Evidence from firms that replace bank loans with junk bonds

We study firms that reduced private debt by repaying bank loans with proceeds from junk bonds. Thedebt contracts differ dramatically, and the contractual restrictions in bank debt are tighter. Samplefirms are profitable, but experience operating earnings declines just prior to the junk bond issues. Theearnings declines further tighten restrictions in bank debt, and the firms…

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Growth implosions, debt explosions, and my Aunt Marilyn:Do growth slowdowns cause public debt crises?

The worldwide growth slowdown after 1975 was a major negative fiscalshock; lower growth lowers the present value of tax revenues and primary surpluses and thus makes a given level of debt more burdensome. Most countries failed to adjust to thenegative fiscal consequences of the growth implosion and so public debt to GDP ratiosexploded. The growth…

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