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 …

choice. Using panel data on leverage choices and the model's predictions for different statistical moments of leverage, we … show that while refinancing costs help explain the patterns observed in the data, their quantitative effects on debt … manager control over the leverage decision, one can obtain capital structure dynamics consistent with the data. In particular …

We develop a dynamic model of banking to assess the effects of liquidity and leverage requirements on banks' insolvency … requirements with leverage requirements reduces drastically both the likelihood of default and the magnitude of bank losses in …

reduce adverse selection and improve the pricing of newly issued debt. Over time, the benefits of learning decrease and zero-leverage …I develop a dynamic model of financing decisions and optimal debt maturity choice in which creditors face adverse … selection and learn about the firm's quality from news. In equilibrium, shareholders may choose to postpone debt issuance to …

Recent empirical studies show that innovative firms heavily rely on debt financing. Debt overhang implies that debt … hampers investment by incumbents. We show that a second effect of debt is that it stimulates entry of new firms and, therefore … demonstrate that this second effect always dominates, so that debt fosters innovation and growth at the aggregate level. Our paper …

This paper analyzes the interaction between financial leverage and takeover activity. We develop a dynamic model of …. We demonstrate that there exists an asymmetric equilibrium in financing policies with endogenous leverage, bankruptcy …, and takeover terms, in which the bidder with the lowest leverage wins the takeover contest. Based on the resulting …

Cooper and Nyborg (2008) derive a tax-adjusted discount rate formula under a constant proportion leverage policy … anticipated recovery in default, yet small. The cost of debtʺ in the tax adjusted discount rate formula is the debt’s yield rather … than its expected rate of return. tax-adjusted discount rates, tax shields, risky debt, cost of debt, personal taxes …

Modern corporations use complex debt instruments and pursue acquisitions. In order to analyze the properties of some of …, comprising one of five practically important structured debt contracts. An opportunity for an acquisition comes along that was … not ex-ante contractible. The equity holder decides on the financing of this expansion by trading off tax advantages of …