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

• 成果类型: Article
• 署名作者: Molina, CA
• 署名单位: Pontificia Universidad Catolica de Chile
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/j.1540-6261.2005.00766.x
• 发表日期: 2005
• 页码: 1427-1459
• 关键词: optimal capital structure; GROWTH OPPORTUNITIES; debt; determinants; INVESTMENT; bankruptcy; COSTS; RISK; distress; outliers

摘要

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.