static tradeoff theory model in which agents are both risk averse and ambiguity averse. The model confirms the usual idea …

for corporate leverage. The risk anomaly generates a simple tradeoff theory: At zero leverage, the overall cost of capital …. Empirically, the risk anomaly tradeoff theory and the traditional tradeoff theory are both consistent with the finding that firms … with low-risk assets choose higher leverage. More uniquely, the risk anomaly theory helps to explain why leverage is …

costs of subsidizing corporate debt from the existing literature. Our theory also sheds light on why the IRS considers …