Hovakimian, Armen; Kayhan, Ayla; Titman, Sheridan - In: Review of Financial Studies 25 (2012) 2, pp. 315-340
Default probability plays a central role in the static trade-off theory of capital structure. We directly test this theory by regressing the probability of default on proxies for costs and benefits of debt. Contrary to predictions of the theory, firms with higher bankruptcy costs, i.e., smaller...