Simulation experiments show that both partial adjustment and debt-equity choice models can generate spuriously significant estimates that are consistent with the hypothesis that firms have target debt ratios to which they periodically adjust. Regressions relying on full-sample fixed effects...

Recent research has focused on the estimates of the speed of adjustment to target leverage as the indicators of the importance of dynamic trade-off behavior. We show that the observed corporate financing behavior and the resulting dynamics of corporate debt ratios are such that the speed of...

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...

This paper proposes a theoretically based and easy-to-implement way to measure the systemic risk of financial institutions using publicly available accounting and stock market data. The measure models the credit enhancement taxpayers provide to individual banks in the Merton tradition (1974) as...

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...

Contrary to Baker and Wurgler (2002), we find that the importance of historical average market-to-book in leverage regressions is not due to past equity market timing. We find that only equity issues may be timed to conditions in equity market, but they do not have significant long-lasting...

Risk-shifting occurs when creditors or guarantors are exposed to loss without receiving adequate compensation. This paper seeks to measure and compare how well authorities in 56 countries controlled bank risk shifting during the 1990s. Although significant risk shifting occurs on average,...

We document that firms' financing decisions are affected by historical high prices. The ratio of the monthly high price to the 12-month historical high positively affects the probability of an SEO. Furthermore, the announcement market reaction is muted and the offering discount is smaller if the...