We build a model of investment and financing decisions to study the choice between bonds and bank loans in a firm's marginal financing decision and its effects on corporate investment. We show that firms with more growth options, higher bargaining power in default, operating in more competitive...

This review evaluates the four major theories of corporate financing: (1) the Modigliani–Miller theory of capital-structure irrelevance, in which firm values and real investment decisions are unaffected by financing; (2) the trade-off theory, in which firms balance the tax advantages of...

This paper explores pyramidal firms and their motivations for the use of debt financing. We find that pyramids have significantly higher leverage than non-pyramids and that the use of debt in pyramids is associated with the risk of expropriation. We do not find evidence for the...

China's new Corporate Income Tax Law was passed in March 2007 and took effect on January 1, 2008. It terminated the dual corporate income tax regime by removing the preferential tax treatments offered to foreign investment enterprises (FIEs) and unifying the corporate income tax regime for FIEs...

This study extends the works of Mauer and Sarkar (2005) and Andrikopoulos (2009) by incorporating a regime-dependent earnings-based bonus into managerial compensation. Examining the individual effects of ownership shares and earnings-based bonus compensation, we find that the former provides...

This paper extends prior work on the linkage between politically connected (PCON) firms and capital structure in developing countries. Specifically, this paper focuses on the association between Malaysian PCON firms and leverage, and is motivated by the results of Fraser et al. (2006) who report...

Because the personal tax treatments of interest and dividend income likely affect the relative cost of debt and equity financing, a sharp change in tax treatment could affect firms' optimal leverage. This paper examines the effect of the 2003 equity income tax cut on firms' debt usage. Because...

We develop a dynamic model of investment, capital structure, leasing, and risk management based on firms' need to collateralize promises to pay with tangible assets. Both financing and risk management involve promises to pay subject to collateral constraints. Leasing is strongly collateralized...

We study the effects of corruption on the capital structures of firms in 72 countries. Using the Corruption Perception Index, we show that corruption increases the costs of debt and equity. Interestingly, as the level of corruption decreases, these costs become more sensitive to changes in...

Since its publication, the seminal structural model of default by <xref ref-type="bibr" rid="B45">Merton (1974) has become the workhorse for gaining insights about how firms choose their capital structure, a “bread and butter” topic for financial economists. Capital structure theory is inevitably linked to several...</xref>