Ippolito, Filippo; Steri, Roberto; Tebaldi, Claudio - 2017
We revisit the relation between equity returns and financial leverage through the lens of a trade-off model with costly … returns depend on whether a firm's leverage is above or below its target leverage. The data support the model predictions …. Controlling for leverage, overlevered (underlevered) firms earn higher (lower) returns. Controlling for target leverage the …