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Are firms underleveraged ? an examination of the effect of leverage on default probabilities

Molina, Carlos A - ;

A commonly held view in corporate finance is that firms are less leveraged than they should be, given the potentially large tax benefits of debt. In this paper, I study the effect of firms' leverage on default probabilities as represented by the firms' ratings. Using an instrumental variable approach, I find that the leverage's effect on ratings is three times stronger than it is if the endogeneity of leverage is ignored. This stronger effect results in a higher impact of leverage on the ex ante costs of financial distress, which can offset the current estimates of the tax benefits of debt..Printed Journal


Ketersediaan

Call NumberLocationAvailable
PSB lt.dasar - Pascasarjana1
Penerbit: The American Finance Association
Edisi-
Subjek-
ISBN/ISSN221082
Klasifikasi-
Deskripsi Fisik-
Info Detail Spesifik-
Other Version/RelatedTidak tersedia versi lain
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