Upcoming Webinars

Complementarity of Bank and Market Debt in Dynamic Debt Structure

Jessica Li

May 14, 2026
Seminar: 12:00 pm - 1:00 pm ET (9am PT, 5pm BST, 6pm CEST).
Virtual Coffee Break: 1:00 pm - 1:30 pm ET

Abstract: I develop a dynamic model of firm debt structure with renegotiable bank debt and arm’s-length market debt. Bank debt is renegotiated through bilateral firm-bank bargaining, excluding market debt investors and exposing them to dilution. Anticipating renegotiation, the firm trades market debt to shape equity holders’ outside option and bargaining surplus, “front-running” bank lender’s rents. This interaction creates complementarity between bank and market debt, driven by the firm’s incentive to pit creditors against each other. The model predicts that firms repurchase market debt when renegotiation will increase bank debt, while higher bank debt today leads to greater future market debt issuance.