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Does the Debt Tax Shield Distort Ownership Efficiency?

Norbäck, Pehr-Johan; Persson, Lars; Tåg, Joacim - 2017

The tax laws of most developed countries are debt biased since firms can deduct interest on debt but not on equity. This bias is known to distort investment decisions. However, less is known about how the debt tax shield affects the ownership of assets when bidders differ financial expertise and...

Persistent link: https://www.econbiz.de/10014194288

Operating Leverage, Profitability and Capital Structure

Chen, Zhiyao - 2017

Operating leverage increases profitability and reduces optimal financial leverage. Thus, operating leverage generates a … negative relation between profitability and financial leverage that is thought to be inconsistent with the trade-off theory …, but is commonly observed in the data. We demonstrate the effect of operating leverage on firms' profitability and …

Persistent link: https://www.econbiz.de/10012974654

Impact of debt management on profitability of large non-financial firms in Serbia

Milošev, Ivana - In: Ekonomske teme 59 (2021) 4, pp. 461-477

Profitability is substantial for any firm to maintain business and enable long-term sustainability. Firms' decision on … new empirical evidence on the influence of debt (debt ratio and debt to equity ratio) on firm profitability (ROA), with … significant correlation and negative influence of debt ratio and capital structure on firm profitability. …

Persistent link: https://www.econbiz.de/10013266167

Debt covenant renegotiation and investment

Arnold, Marc; Westermann, Ramona - 2015

This paper develops a model with the novel feature that firms can renegotiate debt both in and outside distress. We show that this feature is crucial for debt renegotiation models to explain corporate policies and debt prices. Specifically, the model reflects empirical credit spread patterns,...

Persistent link: https://www.econbiz.de/10011345070

Financing investment: the choice between bonds and bank loans

Morellec, Erwan; Valta, Philip; Zhdanov, Alexei - 2014

We build a model of investment and financing decisions to study the choice between bonds and bank loans in a firm's marginal financing decision and its effects on corporate investment. We show that firms with more growth options, higher bargaining power in default, operating in more competitive...

Persistent link: https://www.econbiz.de/10010258730

Relationship capital and financing decisions

Geelen, Thomas; Morellec, Erwan; Rostova, Natalia - 2021

Lending relationships matter for firm financing. In a model of debt dynamics, we study how lending relationships are formed and how they impact leverage and debt maturity choices. In the model, lending relationships evolve through repeated interactions between firms and debt investors. Stronger...

Persistent link: https://www.econbiz.de/10012612803

Debt Maturity Structure and Corporate Investment

Hong, Claire Yurong; Hou, Kewei; Nguyen, Thien T. - 2023

, profitability, and growth potential. We rationalize our results in a model in which debt maturity structure is determined by the …

Persistent link: https://www.econbiz.de/10014253960

Financial distress as an agency problem : evidence on non-monotonic and substitute discipline effects of leverage and competition

Uğur, Mehmet; Solomon, Edna Maeyen; Zeynalov, Ayaz - 2021

This paper addresses two issues encountered in the empirical financial distress literature: a-theoretical treatment of leverage and product-market competition as predictors of financial distress hazard; and lack of attention to frailty as a potential source of bias in reported estimates. We...

Persistent link: https://www.econbiz.de/10014533532

Systematic risk, debt maturity and the term structure of credit spreads

Chen, Hui; Xu, Yu; Yang, Jun - 2012

We build a dynamic capital structure model to study the link between systematic risk exposure and debt maturity, as well as their joint impact on the term structure of credit spreads. Our model allows for time variation and lumpiness in the maturity structure. Relative to short-term debt,...

Persistent link: https://www.econbiz.de/10009583690

Equity Performance of Zero Debt Firms Vis-À-Vis their Leveraged Counterparts

Guha Deb, Soumya - 2012

The purpose of this paper is to find out if firms that operate with debt free balance sheet are rewarded more by the investors at large. For this we form portfolios of debt free firms and compare their performance with performance of matching portfolios of leveraged firms from the same industry...

Persistent link: https://www.econbiz.de/10013100347

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