What is the meaning of debt overhang?
Debt overhang refers to a debt burden so large that an entity cannot take on additional debt to finance future projects. This includes entities that are profitable enough to be able to reduce indebtedness over time.
What is an overhang in accounting?
Overhang is a measure of the potential dilution to which common shareholders are exposed due to possible awards of stock-based compensation. Overhang is usually represented as a percentage and is calculated as stock options granted plus the remaining options to be granted divided by the total shares outstanding.
Is debt overhang an agency problem?
Economists recognize this situation as an agency problem that can arise between a firm’s debt holders and equity shareholders. Debt overhang, both in terms of corporations and governments, is a form of the underinvestment problem that negatively impacts either shareholders or a nation’s citizens.
Who developed the debt overhang theory?
Borensztein
Borensztein (1990) outlined two different routes by which investment can be affected by foreign debt. These can be described as credit rationing and debt overhang.
What is the English meaning of overhanging?
1 : to project over. 2 : to impend over : threaten. intransitive verb. : to project so as to be over something. overhang.
What is trade off theory in finance?
The trade-off theory of capital structure is the idea that a company chooses how much debt finance and how much equity finance to use by balancing the costs and benefits. An important purpose of the theory is to explain the fact that corporations usually are financed partly with debt and partly with equity.
What is private equity overhang?
By Generational Equity. Several times during the past few months we have seen estimates regarding the size of the private equity overhang. This refers to the amount of capital committed by investors to equity firms for investing purposes.
What is over investment problem?
A situation in which the management of a publicly-traded company invests in too many projects, especially when the projects do not benefit shareholders.
What is shifting risk?
Risk shifting is the transfer of risk(s) from one party to another party. Risk shifting can take on many forms, from purchasing an insurance policy to hedging investment positions to corporations moving from defined-benefit pensions to defined-contribution retirement plans like 401(k)s.
What do you mean by debt trap?
A situation in which a debt is difficult or impossible to pay typically because high interest payments prevent re-payment of principal.
What is the word overhang mean?
Definition of overhang (Entry 2 of 2) 1 : something that overhangs also : the extent of the overhanging. 2 : the part of the bow or stern of a ship that projects over the water above the waterline. 3 : a projection of the roof or upper story of a building beyond the wall of the lower part.