Joachim Jungherr

Institut d'AnÓlisi Econ˛mica
Campus UAB
08193 Bellaterra (Barcelona)

About me:
I am a Post-doc Researcher at the Institut d'AnÓlisi Econ˛mica (IAE-CSIC) in Barcelona (Spain), a Research Fellow at MOVE, and an Affiliated Professor at the Barcelona Graduate School of Economics. I received my PhD from the European University Institute in Florence (Italy). I am co-organizing the Bellaterra Macroeconomics Seminar. A detailed CV can be found here.


Debt Dilution and Debt Overhang
(with Immo Schott)
(October 2017, submitted)

Barcelona GSE Working Paper 997

We introduce long-term debt (and a maturity choice) into a standard model of firm financing and investment. This allows us to study two distortions of investment: (1.) Debt dilution distorts firmsĺ choice of debt which has an indirect effect on investment; (2.) Debt overhang directly distorts investment. In a dynamic model of investment, leverage, and debt maturity, we show that the two frictions interact to reduce investment, increase leverage, and increase the default rate. We provide empirical evidence from U.S. firms that is consistent with the model predictions. Using our model, we isolate and quantify the effect of debt dilution and debt overhang. Debt dilution is more important for firm value than debt overhang. Debt overhang can actually increase firm value by reducing debt dilution. The negative effect of debt dilution on investment is about half as strong as that of debt overhang. Eliminating the two distortions leads to an increase in investment equivalent to a reduction in the corporate income tax of 3.5 percentage points.

A Blessing in Disguise? Market Power and Growth with Financial Frictions
(with David Strauss)
(August 2017, submitted)

Barcelona GSE Working Paper 998

Firm market power raises growth in the presence of financial frictions. The reason is that self financing becomes more effective if firm earnings are higher. We test this mechanism using Korean manufacturing data 1963-2003. We find that more concentrated sectors grow faster. This positive empirical relationship between concentration and growth gets weaker as credit becomes more abundant. Using a simple growth model, we study counterfactuals. The observed rise of concentration in Korea until the mid-1970s has increased manufacturing value added 1963-2003 on average by at least 0.6% per year. The effect of firm market power on worker welfare is ambiguous.

Optimal Debt Maturity and Firm Investment
(with Immo Schott)
(November 2016)

Barcelona GSE Working Paper 943; ADEMU Working Paper 2016/051

This paper introduces a maturity choice to the standard model of firm financing and investment. Long-term debt renders the optimal firm policy time-inconsistent. Lack of commitment gives rise to debt dilution. This problem becomes more severe during downturns. We show that cyclical debt dilution generates the observed counter-cyclical behavior of default, bond spreads, leverage, and debt maturity. It also generates the pro-cyclical term structure of corporate bond spreads. Debt dilution renders the equilibrium outcome constrained-inefficient: credit spreads are too high and investment is too low. In two policy experiments we find the following: (1) an outright ban of long-term debt improves welfare in our model economy, and (2.) debt dilution accounts for 84% of the credit spread and 25% of the welfare gap with respect to the first best allocation.

Bank Opacity and Financial Crises
(New Version: October 2017, submitted)

Barcelona GSE Working Paper 882; ADEMU Working Paper 2016/002; Barcelona GSE Focus

This paper studies a model of endogenous bank opacity. Why do banks choose to hide their risk exposure from the public? And should policy makers force banks to be more transparent? In the model, bank opacity is costly because it encourages banks to take on too much risk. But opacity also reduces the incidence of bank runs (for a given level of risk taking). Banks choose to be inefficiently opaque if the composition of their asset holdings is proprietary information. In this case, policy makers can improve upon the market outcome by imposing public disclosure requirements (such as Pillar Three of Basel II). However, full transparency maximizes neither efficiency nor stability. The model can explain why empirically a higher degree of bank competition leads to increased transparency.

Work in Progress

Capital Structure, Uncertainty, and Macroeconomic Fluctuations


I am teaching the second part of the class on Foundations of Equilibrium Analysis in the Macroeconomic Policy and Financial Markets Program of the Barcelona GSE.


Last updated: October 2017