Paul Pfleiderer received BA, MPhil, and PhD degrees from Yale University, all in the field of economics. He has been teaching at Stanford since 1981. His research, much of which has been jointly pursued with Anat Admati, another professor of finance at the GSB, is generally concerned with issues that arise when agents acting in financial markets are differentially informed. His current research concerns corporate governance. In addition to his academic research, Professor Pfleiderer has consulted for various corporations and banks and has been involved in developing risk models and optimization software for use by portfolio managers.
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We analyze shareholders’ incentives to change the leverage of a firm that has already borrowed substantially. As a result of debt overhang, shareholders have incentives to resist reductions in leverage that make the remaining debt safer.