We develop a dynamic two-stage trade-off model with refinancing when earnings are mean reverting, expanding previous theoretical work focusing on non-stationary dynamics. Our model predicts a negative relation between profitability and leverage ratios at refinancing, providing a possible...

We propose an alternative to the standard nonstationary earnings dynamics framework for studying refinancing decisions by building a dynamic two-stage trade-off model with refinancing for firms following mean reverting earnings. The model predicts a negative relation between profitability and...

We develop a dynamic trade-off model with mean-reversion in earnings and a growth option and provide predictions on the impact of long-term profitability, mean reversion speed, volatility of earnings and debt priority structure on firm value, the dynamics of leverage and credit spreads and the...

We develop a dynamic trade-off model with mean-reversion in earnings and a growth option and provide predictions on the impact of long-term profitability, mean reversion speed, volatility of earnings and debt priority structure on firm value, the dynamics of leverage and credit spreads and the...