We introduce ambiguity about assets' value dynamics into a trade-off framework of capital structure to explain the empirically observed zero-leverage and underleverage puzzles. We utilize the decision framework of Chen and Epstein (2002) to characterize investors' ambiguity aversion. We show...

This paper focuses on information acquisition and individual decision making in ambiguous situations and presents a novel experimental design which may help to tackle open questions from a fresh perspective. Instead of giving subjects the choice between risky and ambiguous Ellsberg urns, we let...

In this paper, we establish an axiomatically founded generalized recursive smooth ambiguity model that allows for a separation among intertemporal substitution, risk aversion, and ambiguity aversion. We axiomatize this model using two approaches: the second-order act approach à la Klibanoff,...