There is considerable evidence that machine learning algorithms have better predictive abilities than humans in various financial settings. But, the literature has not tested whether these algorithmic predictions are more rational than human predictions. We study the predictions of corporate...

The inverse relation between leverage and profitability is widely regarded as a serious defect of the tradeoff theory. We show that the defect is not with the theory but with the use of a leverage ratio in which profitability affects both the numerator and the denominator. Profitability directly...