Tradeoff Theory and Leverage Dynamics of High-Frequency Debt Issuers*

Eckbo, B. Espen; Kisser, Michael

doi:10.1093/rof/rfaa018

Cited by 19 publications

(15 citation statements)

References 48 publications

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“…that are widely used in the empirical capital structure literature. Gradual "under-adjustment" also leads to the well-documented negative relation between leverage and profitability, even for frequent issuers of debt (see Frank and Goyal (2015) and Eckbo and Kisser (2018)).…”

Section: A Target Leverage and Adjustment Speedmentioning

confidence: 99%

Leverage Dynamics without Commitment

DeMarzo¹,

He²

2021

The Journal of Finance

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We characterize equilibrium leverage dynamics in a trade-off model in which the firm can continuously adjust leverage and cannot commit to a policy ex ante. While the leverage ratchet effect leads shareholders to issue debt gradually over time, asset growth and debt maturity cause leverage to mean-revert slowly toward a target. Investors anticipate future debt issuance and raise credit spreads, fully offsetting the tax benefits of new debt. Shareholders are therefore indifferent toward the debt maturity structure, even though their choice significantly affects credit spreads, leverage levels, the speed of adjustment, future investment, and growth.

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Section: A Target Leverage and Adjustment Speedmentioning

confidence: 99%

Leverage Dynamics without Commitment

DeMarzo¹,

He²

2021

The Journal of Finance

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“…Past studies have produced an eclectic mix of results on the link between profitability and financial leverage. In perusing how financial leverage is connected to profitability of firms, a positive association between profitability and financial leverage was supported by Yoon and Jang (2005), Akhtar et al (2012) and Eckbo and Kisser (2018) amongst others. Furthermore studies such as Kester (1986), Rajan and Zingales (1995), and Pradhan and Khadka (2017) amongst others documented a negative influence of financial leverage on profitability.…”

Section: Introductionmentioning

confidence: 91%

“…Elucidating the role that financial leverage plays on profitability of organizations is not a research that was born recently, but stays among the extant research worldwide. The question as to whether financial leverage contributes towards the profitability of firms, has grabbed the attention of numerous researchers such as Modigliani and Miller (1958), Myers (1984), Jensen and Meckling (1986), Rajan and Zingales (1995), Abor (2005), Rehman (2013), Eckbo and Kisser (2018) and many others.…”

Section: Introductionmentioning

confidence: 99%

Factors Hindering Class Attendance: Views of University Accounting Students

Ramnoher¹,

Seetah²

2020

AJFA

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This paper examines the factors that hinder University accounting students from attending classes on a regular basis. A survey instrument comprising of factors that impede class attendance - adopted from prior studies and modified- was administered to second, third and fourth year students doing accounting courses. Descriptive statistics were computed and Independent sample T-tests were performed to measure how statistically significant different the views of students from different years of study were. The results of the study suggest that studying for other tests, uploading of lecture materials to ICT platforms, failure to do the necessary reading in advance of class, working on the project which is due on the same day of a class, lack of proper time management and failure to properly allocate time to school activities are among the ten key factors responsible for class non-attendance. Other hindrances to class attendance include having many lecturers to attend in a day, transport problems to school, lack of personal motivation and a long time lag between classes. In addition, the results reveal that majority of respondents assess their class attendance to be satisfactory; and there is no evidence to indicate that type of course, gender and accommodation status are among the causes of differences in class attendance. Also the results suggest that the higher the levels of study the more the number of factors are considered hindrances to class attendance. These results have implications to students, lecturers, tertiary institutions and sponsors who in one way or the other can devise means to mitigate the problem of class absenteeism.

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“…Perhaps most problematic for the standard trade‐off model is the apparent negative correlation between profitability and leverage . Although this relation can be a consequence of large fixed costs associated with debt issuance (Fischer, Heinkel, and Zechner ()), it survives even when restricting attention to high‐frequency debt issuers (Eckbo and Kisser ()).…”

Section: Empirical Challenges and An Examplementioning

confidence: 99%

Presidential Address: Collateral and Commitment

DeMarzo

2019

The Journal of Finance

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Optimal dynamic capital structure choice is fundamentally a problem of commitment. In a standard trade‐off setting with shareholder‐debtholder agency conflicts, full commitment counterfactually predicts the firm would rely almost exclusively on debt financing. Conversely, absent commitment a Modigliani‐Miller‐like value irrelevance and policy indeterminacy result holds. Thus, the content of dynamic trade‐off theory must depend on the commitment technology. In this context, collateral is valuable as a low‐cost commitment device. Because ex ante optimal commitments are likely to be suboptimal ex post, observed capital structure dynamics will exhibit hysteresis and depart significantly from standard predictions.

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Tradeoff Theory and Leverage Dynamics of High-Frequency Debt Issuers*

Cited by 19 publications

References 48 publications

Leverage Dynamics without Commitment

Leverage Dynamics without Commitment

Factors Hindering Class Attendance: Views of University Accounting Students

Presidential Address: Collateral and Commitment

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