Optimal Capital Structure and Industry Dynamics
This paper provides a competitive equilibrium model of capital structure and industry dynamics. In the model, firms make financing, investment, entry, and exit decisions subject to idiosyncratic technology shocks. The capital structure choice reflects the tradeoff between the tax benefits of debt and the associated bankruptcy and agency costs. The interaction between financing and production decisions influences the stationary distribution of firms and their survival probabilities. The analysis demonstrates that the equilibrium output price has an important feedback effect. This effect has a number of testable implications. For example, high growth industries have relatively lower leverage and turnover rates. Copyright 2005 by The American Finance Association.
Year of publication: |
2005
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Authors: | MIAO, JIANJUN |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 60.2005, 6, p. 2621-2659
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Publisher: |
American Finance Association - AFA |
Saved in:
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