Topic: Optimal Time-Consistent Debt Policies
Speaker: Andrey Malenko, Professor, Carroll School of Management, Boston College
Time: 10:00am-11:30am, Monday, April 28
Location: 4-101
Abstract:
We study a dynamic trade-off model where shareholders can freely adjust debt but lack commitment to future debt policies. A debt policy is time-consistent if shareholders prefer it to deviating and losing credibility ex-post. We characterize the optimal time-consistent policy in a class. It includes a stable regime, where shareholders actively manage liabilities to maintain the target interest coverage ratio, and a distress regime triggered by large negative shocks, where shareholders temporarily abandon the target. This policy has realistic properties and bridges the gap between the static trade-off theory of debt and the theory based on the leverage ratchet effect.
Speaker Biography:
Andrey Malenko is a professor in the Seidner Department of Finance at the Boston College Carroll School of Management. His research is in the areas of corporate investment and financing, corporate governance, and mergers and acquisitions, as well as auction theory and economics of information. His recent work has examined the optimal design of securities, regulation of shareholder voting, auctions of companies, and the role of institutional investors in corporate governance.
Malenko's work has been published in leading academic journals, such as American Economic Review, Review of Economic Studies, Journal of Finance, Journal of Financial Economics, and The Review of Financial Studies. He is the recipient of the 2020 Brattle Prize for a distinguished paper in corporate finance in the Journal of Finance. He is a research fellow at the Centre for Economic Policy and Research, a research member at the European Corporate Governance Institute, and an associate editor at the Journal of Finance, The Review of Financial Studies, and The Review of Corporate Finance Studies.
Before joining Boston College, Malenko was on the faculty at the University of Michigan and Massachusetts Institute of Technology. Malenko received a Ph.D. in finance from Stanford University, and holds bachelor and master's degrees from New Economic School and the National Research University's Higher School of Economics in Moscow, Russia. He currently teaches MBA and Ph.D. courses in corporate finance.
