uncertainty. The firm faces additional sources of uncertainty that are aggregated into a background risk. We show that the firm … always chooses its optimal debt-equity ratio to minimize the weighted average cost of capital, irrespective of the risk …. When the background risk is either additive or multiplicative, we provide reasonable restrictions on the firm's preferences …

How risk and uncertainty are perceived depends on experience, luck, skills, and modelling, and, unsurprisingly, they … risk and unquantifiable uncertainty. Looking beyond risk and evaluating how uncertainty constrains optimal leverage is … explored by extending the Kelly Criterion to a simple probabilistic model with an additional tail risk outcome associated with …

uncertainty, whereas it decreases with risk. When the effect of uncertainty dominates that of risk, a firm optimally defaults … earlier than predicted by a traditional dynamic model with risk alone. My ambiguity-augmented model predicts substantially …

% relative to a matched control firm from another industry. The results are not explained away by changes in traditional risk …