Levered Returns and Capital Structure Imbalances

Ippolito, Filippo; Steri, Roberto; Tebaldi, Claudio; Villa, Alessandro

doi:10.2139/ssrn.4232404

SSRN Journal

2022

DOI: 10.2139/ssrn.4232404

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Levered Returns and Capital Structure Imbalances

Filippo Ippolito,

Roberto Steri,

Claudio Tebaldi

et al.

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“…The model of George and Hwang (2010), as generalized by Johnson et al (2011), suggests that such a negative relation arises because firms with high distress costs choose low leverage ratios. Ippolito, Steri, and Tebaldi (2017) examine deviations from target leverage ratios and find that the sign of the relation between equity returns and leverage depends on whether firms are under-or overlevered. We offer a new perspective by emphasizing the relevance of firms' debt maturity choices.…”

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confidence: 99%

Debt Refinancing and Equity Returns

Friewald¹,

Nagler²,

Wagner

2022

The Journal of Finance

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This paper presents empirical evidence that the maturity structure of financial leverage affects the cross-section of equity returns. We find that short-term leverage is associated with a positive premium, whereas long-term leverage is not. The premium for short-term compared to long-term leverage reflects higher exposure of equity to systematic risk. To rationalize our findings, we show that the same patterns emerge in a model of debt rollover risk with endogenous leverage and debt maturity choice. Our results suggest that analyses of leverage effects in asset prices and corporate financial applications should account for the maturity structure of debt.FINANCIAL LEVERAGE PLAYS A CENTRAL role in corporate finance and asset pricing. In this paper, we empirically revisit the cross-sectional relation between market leverage and equity returns from a novel perspective. Specifically, we investigate the possibility that shareholders care about firms' debt maturity structures and therefore price leverage associated with short-term

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confidence: 99%

Debt Refinancing and Equity Returns

Friewald¹,

Nagler²,

Wagner

2022

The Journal of Finance

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Levered Returns and Capital Structure Imbalances

Cited by 1 publication

References 7 publications

Debt Refinancing and Equity Returns

Debt Refinancing and Equity Returns

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