Breaking the Debt Cycle: How Firms Can Achieve Financial Efficiency
The article explores how companies in a competitive market make financial decisions under uncertainty. When firms share perfect information, they can break the usual pattern of both issuing debt and benefit from it. However, this outcome may change when uncertainty is low or information is imperfect. The key finding is that the effects of issuing debt remain the same regardless of uncertainty levels, as firms can adjust debt terms to reach a better solution.