caa a22 4500 388047674 CHVBK 20180307125042.0 cr unu---uuuuu 161130e199803 xx s 000 0 eng 10.2307/2331379 doi S0022109000023887 pii (NATIONALLICENCE)cambridge-10.2307/2331379 Snyder Christopher M. Department of Economics, George Washington University, 2201 G Street NW, Washington DC 20052. Loan Commitments and the Debt Overhang Problem [Elektronische Daten] [Christopher M. Snyder] The debt overhang problem is shown to arise in the context of an entrepreneurial project that requires a sequence of investments financed by an outside lender. The entrepreneur, not internalizing losses accruing to the lender which financed the initial investments, may inefficiently cancel the project and instead pursue an outside opportunity. It is shown that loan commitments (contracts that allow the entrepreneur to borrow a variable amount at a set interest rate in return for a fixed fee) are the optimal financial contracts in this setting, strictly dominating standard debt. The existence of the fixed fee allows loan commitments to set a relatively low interest rate, improving the entrepreneur's incentives to continue the project. The paper specifies the optimal contract fully, derives robust comparative statics properties (using an extension of Milgrom and Roberts (1994)), and extends the results to more realistic settings (e.g., allowing the market risk-free rate to be stochastic). Copyright © School of Business Administration, University of Washington 1998 Journal of Financial and Quantitative Analysis Cambridge University Press 33/1(1998-03), 87-116 0022-1090 33:1<87 1998 33 JFQ https://doi.org/10.2307/2331379 text/html Onlinezugriff via DOI 1 research-article jats NATIONALLICENCE 856 40 https://doi.org/10.2307/2331379 text/html Onlinezugriff via DOI NATIONALLICENCE 100 1- Snyder Christopher M. Department of Economics, George Washington University, 2201 G Street NW, Washington DC 20052 NATIONALLICENCE 773 0- Journal of Financial and Quantitative Analysis Cambridge University Press 33/1(1998-03), 87-116 0022-1090 33:1<87 1998 33 JFQ CC0 http://creativecommons.org/publicdomain/zero/1.0 nationallicence BK010053 XK010053 XK010000 NATIONALLICENCE NATIONALLICENCE NL-cambridge