A theory of capital structure in which costs associated with asymmetric information are the sole friction is used to present a new perspective on the standard pecking order theory. In the model, both the amount of debt and the restrictiveness of the associated debt covenants are considered to be...

We present a tradeoff theory of capital structure in which costs associated with asymmetric information are the sole friction. By considering both the amount of debt as well as the restrictiveness of the associated debt covenants a more complete characterization of debt structure is examined...

We propose a theory of optimal firm financing given nested information problems of adverse selection and agency cost. We prove that there exists a unique perfect Bayesian equilibrium with novel features: First, three types of optimal contracts arise endogenously, i.e., equity, transparent debt...

Prior research shows that technology spillovers across firms increase innovation, productivity, and value. We study how firms finance their own growth stimulated by technology spillovers from their technological peer firms. We find that greater technology spillovers lead to higher leverage. This...

This study unfolds the role of national culture in determining the firm financial performance through channel of corporate financial policy. Sample size consists of 7623 non-financial sector firms from 13 Asian economies and fixed-effect model applies to estimates the regression. As the findings...

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...

When firms approach distress, whether they engage in asset substitution (risk shifting) or rebuild equity (risk management) may depend on their access to capital markets. The property-casualty insurance industry has two features that make it ideal for testing this hypothesis: (1) the main losses...

The current literature is equivocal and provides inconsistent evidence about the relationship between firms' performance and capital structure choices. This study adds the empirical evi- dence on association between capital structure and bank performance to this inconclusive de- bate. It uses...

This study examines the relationship between corporate managers' political ideology and corporate leverage policies conditional on investor sentiment. Based on a minimum of 21,884 observations over the 1992-2008 period, the authors show that Republican managers significantly reduce leverage...

Effective capital decisions not only increase the operational efficiency of businesses but also is strategic to bring the enterprise's competitive advantages to the market. Using an appropriate debt ratio helps businesses to strike a balance between internal and external resources to compete...