A Dynamic Model of Corporate Capital Structure PDF Download
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Author: Stein Frydenberg
Publisher:
ISBN:
Category :
Languages : en
Pages : 58
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Book Description
In this paper I present a dynamic model for capital structure. The result of the dynamic panel data estimate is that fixed assets and the lagged-debt variables explain leverage. Conditioning the debt level on the lagged-debt level reveals that the significance of other parameters falls as compared to a static model, and can be interpreted as support for the pecking order hypothesis. I have shown that the capital structure is changing at a slow pace. The firms changes only about 15% of the debt each year. The debt ratio of low and high level debt firms changes more for each year and both low and high debt firms tend to change towards the mean. This finding indicates that the firms set a target level for their debt structure.
Author: Stein Frydenberg
Publisher:
ISBN:
Category :
Languages : en
Pages : 58
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Book Description
In this paper I present a dynamic model for capital structure. The result of the dynamic panel data estimate is that fixed assets and the lagged-debt variables explain leverage. Conditioning the debt level on the lagged-debt level reveals that the significance of other parameters falls as compared to a static model, and can be interpreted as support for the pecking order hypothesis. I have shown that the capital structure is changing at a slow pace. The firms changes only about 15% of the debt each year. The debt ratio of low and high level debt firms changes more for each year and both low and high debt firms tend to change towards the mean. This finding indicates that the firms set a target level for their debt structure.
Author: Ilya A. Strebulaev
Publisher:
ISBN:
Category :
Languages : en
Pages : 159
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Book Description
We review the last two decades of research in dynamic corporate finance, focusing on capital structure and the financing of investment. We first cover continuous time contingent claims models, starting with real options models, and working through static and dynamic capital structure models. We then move on to corporate financing models based on discrete-time dynamic investment problems. We cover the basic model with no financing, as well as more elaborate models that include features such as costly external finance, cash holding, and both safe and risky debt. For all the models, we offer a minimalist, simplified presentation with a great deal of intuition. Throughout, we show how these models can answer questions concerning the effects of financial constraints on investment, the level of corporate leverage, the speed of adjustment of leverage to its target, and market timing, among others. Finally, we review and explain structural estimation of corporate finance models.
Author: Umberto Sagliaschi
Publisher: Springer Nature
ISBN: 3030778533
Category : Business & Economics
Languages : en
Pages : 206
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Book Description
The way in which leverage and its expected dynamics impact on firm valuation is very different from what is assumed by the traditional static capital structure framework. Recent work that allows the firm to restructure its debt over time proves to be able to explain much of the observed cross-sectional and time-series variation in leverage, while static capital structure predictions do not. The purpose of this book is to re-characterize the firm’s valuation process within a dynamical capital structure environment, by drawing on a vast body of recent and more traditional theoretical insights and empirical findings on firm evaluation, also including asset pricing literature, offering a new setting in which practitioners and researchers are provided with new tools to anticipate changes in capital structure and setting prices for firm’s debt and equity accordingly.
Author: Sergey Tsyplakov
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
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Book Description
This paper presents a continuous time model of a firm that can dynamically adjust both its capital structure and its investment choices. The model extends the dynamic capital structure literature by endogenizing the investment choice as well as firm value, which are both determined by an exogenous price process that describes the firm's product market. Within the context of this model we explore interactions between financial distress costs and debtholder/equityholder agency problems and examine how the ability to dynamically adjust the capital structure choice affects both target debt ratios and the extent to which actual debt ratios deviate from their targets. In particular, we examine how financial distress and the firm's objectives, i.e., whether it makes choices to maximize total firm value versus equity value, influence the extent to which firms make financing choices that move them towards their target debt ratios.
Author: Sheridan Titman
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper presents a continuous time model of a firm that can dynamically adjust both its capital structure and its investment choices. In the model we endogenize the investment choice as well as firm value, which are both determined by an exogenous price process that describes the firm's product market. Within the context of this model we explore cross-sectional as well as time-series variation in debt ratios. We pay particular attention to interactions between financial distress costs and debtholder/equityholder agency problems and examine how the ability to dynamically adjust the debt ratio affects the deviation of actual debt ratios from their targets. Regressions estimated on simulated data generated by our model are roughly consistent with actual regressions estimated in the empirical literature.
Author: H. Kent Baker
Publisher: John Wiley & Sons
ISBN: 1118022947
Category : Business & Economics
Languages : en
Pages : 504
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Book Description
A comprehensive guide to making better capital structure and corporate financing decisions in today's dynamic business environment Given the dramatic changes that have recently occurred in the economy, the topic of capital structure and corporate financing decisions is critically important. The fact is that firms need to constantly revisit their portfolio of debt, equity, and hybrid securities to finance assets, operations, and future growth. Capital Structure and Corporate Financing Decisions provides an in-depth examination of critical capital structure topics, including discussions of basic capital structure components, key theories and practices, and practical application in an increasingly complex corporate world. Throughout, the book emphasizes how a sound capital structure simultaneously minimizes the firm's cost of capital and maximizes the value to shareholders. Offers a strategic focus that allows you to understand how financing decisions relates to a firm's overall corporate policy Consists of contributed chapters from both academics and experienced professionals, offering a variety of perspectives and a rich interplay of ideas Contains information from survey research describing actual financial practices of firms This valuable resource takes a practical approach to capital structure by discussing why various theories make sense and how firms use them to solve problems and create wealth. In the wake of the recent financial crisis, the insights found here are essential to excelling in today's volatile business environment.
Author: AMILCAR ARMANDO. MENICHINI
Publisher:
ISBN:
Category :
Languages : en
Pages : 236
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Book Description
This thesis studies different aspects of firm decisions by using a dynamic model. I estimate a dynamic model of the firm based on the trade-off theory of capital structure that endogenizes investment, leverage, and payout decisions. For the estimation of the model I use Efficient Method of Moments (EMM), which allows me to recover the structural parameters that best replicate the characteristics of the data. I start analyzing the question of whether target leverage varies over time. While this is a central issue in finance, there is no consensus in the literature on this point. I propose an explanation that reconciles some of the seemingly contradictory empirical evidence. The dynamic model generates a target leverage that changes over time and consistently reproduces the results of Lemmon, Roberts, and Zender (2008). These findings suggest that the time-varying target leverage assumption of the big bulk of the previous literature is not incompatible with the evidence presented by Lemmon, Roberts, and Zender (2008). Then I study how corporate income tax payments vary with the corporate income tax rate. The dynamic model produces a bell-shaped relationship between tax revenue and the tax rate that is consistent with the notion of the Laffer curve. The dynamic model generates the maximum tax revenue for a tax rate between 36% and 41%. Finally, I investigate the impact of financial constraints on investment decisions by firms. Model results show that investment-cash flow sensitivity is higher for less financially constrained firms. This result is consistent with Kaplan and Zingales (1997). The dynamic model also rationalizes why large and mature firms have a positive and significant investment-cash flow sensitivity.
Author: Natalia Lazzati
Publisher:
ISBN:
Category :
Languages : en
Pages : 37
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Book Description
We derive a dynamic model of the firm in the spirit of the trade-off theory of capital structure that explains firm behavior in terms of firm characteristics. We show our model is consistent with many important findings about the cross-section of firms, including the negative relations between profitability and leverage, and between dividends and investment-cash flow sensitivities. The model also explains the existence of zero-debt firms and their observed characteristics. These results have been used to challenge the trade-off theory and the assumption of perfect capital markets. We revisit these critiques and provide structural explanations for the regularities we replicate.
Author: Robert S. Goldstein
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
Author: Santiago Forte
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
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Book Description
We introduce a model in which risk-free interest rate, firm risk, bankruptcy costs, issuance costs, tax benefits on debt, and earnings ratio, determine the optimal choice of leverage and maturity. The model assumes that debt pays a regular flow of interests, allows the firm to rebalance its optimal capital structure at maturity issuing new debt at par, links tax deductions to the presence of taxable income, and considers default to be an endogenous and time-dependent decision. Simulation results are also provided, with standard leverage ratios, debt maturities, and credit spreads being replicated for reasonable parameter values.
