ABSTRACT
This paper documents a previously unrecognized debtârelated investment distortion. Using detailed projectâlevel data for 69 firms in the oil and gas industry, we find that highly levered firms pull forward investment, completing projects early at the expense of longârun project returns and project value. This behavior is particularly pronounced prior to debt renegotiations. We test several channels that could explain this behavior and find evidence consistent with equity holders sacrificing longârun project returns to enhance collateral values and, by extension, mitigate lending frictions at debt renegotiations.
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