Information Asymmetry at Debt Rollover and Startup Loans

Capital Structure Decisions from Optimal Leverage to Financial Flexibility

Capital structure research began with a deceptively simple question: does the division of financing between debt and equity change firm value? The literature gradually widened that question by adding taxes, bankruptcy costs, agency conflicts, private information, market timing, adjustment costs, national institutions, managerial traits, debt design, and intangible capital. This narrative review examines how those additions changed both theory and practice. It draws on influential foundational papers and selected empirical studies from developed and emerging economies. The evidence does not identify one theory that explains every firm or period. Instead, leverage reflects several forces whose importance varies with cash-flow stability, assets, investment opportunities, access to lenders, institutional conditions, and managerial judgment. Recent work places particular emphasis on maturity, covenants, refinancing risk, unused borrowing capacity, and the ability to finance future investment. The review concludes that capital structure has shifted from a largely static search for one optimal debt ratio toward an adaptive financing policy. Classical theories remain useful, but their insights are now applied within a broader concern for resilience and financial flexibility.

The Debt Market Role of Asset Valuation Uncertainty

We collect data on ranges of hypothetical asset liquidation values disclosed in U.S. Bankruptcy Court filings. We use this historical information to construct a firm-specific measure, “RecRisk,” which captures asset recovery risk through the uncertainty surrounding asset valuations in liquidation events. We document that higher RecRisk is associated with smaller syndicated loan amounts as a percentage of available collateral, more and tighter performance covenants, and increased loan spreads for borrowers with high credit risk. High RecRisk borrowers also experience lower secondary loan market prices and reduced liquidity for loans with high credit risk. When borrowers become financially distressed, high RecRisk is further associated with declining loan prices and reduced ownership by Collateralized Loan Obligations, the dominant investors in the leveraged loan market. Overall, our results indicate that loan contract terms and prices reflect recovery risk faced by lenders. Data Availability: Data are available from the sources cited in the text. The authors can provide the RecRisk measure at the firm-year level upon request. JEL Classifications: M41; G32; G34; G12; G21; G33.

Can the Short-selling Mechanism Enhance Corporate Information Transparency?

Information transparency serves as the foundation for the healthy operation of capital markets and a critical determinant of resource allocation efficiency and investor protection. This study employs China's formal implementation of the securities lending and borrowing system in 2013 as a quasi-natural experiment, utilizing data from A-share non-financial listed companies between 2012 and 2023. Through a multi-period difference-in-differences (DID) model, we examine the impact, mechanism, and heterogeneity characteristics of relaxed short-selling restrictions on corporate information transparency. The findings indicate that the securities lending system curbs both accrued and real earnings management practices among target firms, thereby enhancing corporate information transparency. These conclusions remain robust after rigorous tests including parallel trends, placebo effects, PSM-DID analysis, variable substitution, and sample period adjustments. Mechanism analysis reveals that increased stock price information content and reduced agency costs constitute the primary transmission pathways for the governance effects of the short-selling regime, with analyst oversight playing a supplementary mediating role. Heterogeneity tests demonstrate that the information governance effects of the short-selling system are more pronounced in firms with weaker internal governance, lower product market competition, and poorer regional legal frameworks, while external governance mechanisms serve to compensate for internal governance deficiencies. The study provides theoretical foundations and policy recommendations for refining China's securities lending and borrowing mechanisms and improving corporate information disclosure quality.

The capital constraints channel of collateral eligibility: evidence from a credit support exit policy

zLend: A Dual-Scope Cash-Flow Reconstruction Framework for On-Chain Credit Underwriting

Decentralized lending lacks a credit bureau: a borrower's capacity to repay must be inferred entirely from public on-chain activity, without income verification or a liability record. This paper presents zLend, a deployed cash-flow underwriting framework that reconstructs a wallet's daily balance history from raw token transfers and derives short-duration repayment-capacity signals from it. The reconstruction is performed twice per wallet, once restricted to a fixed stablecoin basket and once over all fungible transfers, on the premise that a wallet's total token holdings and its liquid, spendable balance are distinct quantities whose conflation misprices risk. From each series we derive liquidity coverage against a fixed loan size, cash-flow volatility and regularity, a drawdown-and-recovery statistic adapted from quantitative finance, and a recurring-counterparty detector that identifies salary-like payment cadence from transfer timing alone. The two views are then compared: a wallet with large aggregate holdings whose stablecoin reserve rarely covers the loan size is flagged as a liquidity mismatch irrespective of total wealth. We specify the pipeline formally, document the golden-master methodology used to verify a cross-language production migration to numerical tolerance 1e-9, and characterize the tier function's parameter sensitivity with an independent reimplementation validated to exact agreement (78 of 78 field assertions) against the deployed system's reference fixtures. Tier assignment is governed predominantly by the reference loan size, with four of six reference wallets changing tier across loan sizes from USD 10 to USD 25,000; the drawdown and coverage criteria bind on disjoint wallets, so neither subsumes the other; and no criterion in the tier rule is inert. zLend is deployed in production, informing real lending decisions via third-party API integrations.

SUERF Policy Brief