Jingxiong (Tony) Hu

Working Papers

Debt and Taxes: Revisited in Dynamics     (Updated Sep 2026)

This paper analyzes leverage dynamics with personal and corporate taxes and financial distress costs. The marginal tax benefit of debt depends on whether debt is used for financing needs or financial restructuring. The model features continuous leverage adjustments and no issuance costs. There are two local leverage targets for firms with leverage above or below a threshold, explaining why zero leverage can be optimal. Shifting taxation from corporate income to personal equity income can reduce restructuring-driven leverage and distress costs without losing revenue. A new empirical measure finds no marginal tax benefit to borrowing for most seemingly underleveraged U.S. firms.

Conferences: EFA 2025, WFA 2025, Asian Finance Theory Group 2024, NFA 2023, FMA 2023 (Semifinalist for best paper in corporate finance), Finance Theory Group summer school 2023

The Curse of Seniority: Debt Priority and Inefficient Liquidation  with Chao Ying    (Updated Oct 2026)

We develop a dynamic theory of debt priority that trades off ex ante protection against debt dilution with ex post efficiency in distress. Senior debt limits the leverage ratchet by weakening shareholders' incentives to over-borrow and dilute outstanding claims. However, priority also creates seniority fragmentation: in default, senior creditors with capped claims exercise control with a bias toward inefficient liquidation. Stacking additional senior layers expands the states in which liquidation is chosen despite positive continuation value. The optimal priority structure balances these forces and is therefore coarse, providing a foundation for the link between debt complexity and restructuring outcomes.

Conferences: SFS Cavalcade Asia-Pacific 2026 (scheduled), NFA 2026

When Benchmarking Meets Market Fragmentation with Jiaheng Yu    (New version available soon)

Benchmark trading is increasingly fragmented. We study the impact of market fragmentation on the price efficiency of an important benchmark price -- the market close price. We focus on guaranteed-close trading, in which broker-dealers execute client orders away from the closing auction but at the auction’s price. Using the NYSE closing-auction fee cut as a quasi-experimental shock, we find that reduced guaranteed-close activity increased auction imbalances and raised closing-price errors for roughly four months. Our model shows how intermediaries improve benchmark price efficiency by absorbing identified uninformed demand when exchange liquidity providers face inventory costs.

Conferences: FIRS 2025, EuroFA 2022, NFA 2022, FMA 2022 (Semifinalist for best paper in market microstructure), AsianFA 2022, Microstructure Exchange, Trans-Atlantic Doctoral Conference 2021, MFA 2020