Work

Tradeoff Theory and Leverage Dynamics of High-Frequency Debt Issuers

Year: 2020

Type: article

Abstract: We test whether high-frequency net-debt issuers (HFIs)—public industrial companies with relatively low issuance costs and high debt-financing benefits—manage leverage toward long-run targets. Our answer is they do not: (1) the leverage–profitability correlation is negative even in quarters with leverage rebalancing; (2) the speed-of-adjustment to target leverage deviations is no higher for HFIs than for low-frequency net-debt issuers; and (3) under-leveraged HFIs do not speed up rebalancing activity in significant investment periods. Thus, even in the subset of firms most likely to follow dynamic trade-off theory, the theory does not appear to hold.

Source: European Finance Review

DOI: 10.1093/rof/rfaa018

Authors: B Espen Eckbo, Michael Kisser

Institutions: Dartmouth College, European Corporate Governance Institute, Norwegian School of Economics, BI Norwegian Business School

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2766986932

FWCI: 5.118

Cites: 108

Cited by: 29

Related to: 10