Jingxiong (Tony) Hu

Working Papers

Debt and Taxes: Revisited in Dynamics     (New version!  Updated May 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

Dual Trading, Fee Competition, and Price Discovery at the Market Close  with Jiaheng Yu    (Updated March 2025)

We study how "dual traders," who trade based on the information of client orders, affect price discovery. Closing auctions have high transaction fees and large pricing errors due to growing demand for passive investments. Brokers of alternative trading venues charge lower transaction fees, guarantee execution at closing auctions' prices, and engage in dual trading. Using a quasi-experimental shock-the NYSE closing auction fee cut-we find that alternative venues reduced pricing errors in closing auctions. We explain the finding with a model in which dual traders mitigate the impact of market makers' overnight inventory costs on price efficiency. 

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

The Curse of Seniority: Debt Priority and Inefficient Liquidation  with Chao Ying    (Updated March 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.