Default probability plays a central role in the static tradeoff theory of capital structure. We directly test this theory by regressing the probability of default on proxies for costs and benefits of debt. Contrary to predictions of the theory, firms with higher bankruptcy costs, i.e., smaller...

Default probability plays a central role in the static tradeoff theory of capital structure. We directly test this theory by regressing the probability of default on proxies for costs and benefits of debt. Contrary to predictions of the theory, firms with higher bankruptcy costs, i.e., smaller...

Probability of default plays a central role in the static tradeoff theory of capital structure. We provide a direct test of this theory by regressing the probability of default, measured by S&P credit ratings and Moody's KMV Expected Default FrequencyTM (EDFTM), on firm characteristics that...

Credit ratings can be viewed as a summary statistic that captures various elements of a firm's capital structure. They incorporate a firm's debt ratio, the maturity and priority structure of its debt, as well as the volatility of its cash flows. However, regressions of credit ratings on firm...

Credit ratings can be viewed as a summary statistic that captures various elements of a firm's capital structure. They incorporate a firm's debt ratio, the maturity and priority structure of its debt, as well as the volatility of its cash flows. However, regressions of credit ratings on firm...

Most academic insights about corporate capital structure decisions come from models that focus on the trade-off between the tax benefits and financial distress costs of debt financing. But empirical tests of corporate capital structure indicate that actual debt ratios are considerably different...

Default probability plays a central role in the static trade-off theory of capital structure. We directly test this theory by regressing the probability of default on proxies for costs and benefits of debt. Contrary to predictions of the theory, firms with higher bankruptcy costs, i.e., smaller...