A State‐preference Model of Optimal Financial Leverage

Kraus, Alan; Litzenberger, Robert H.

doi:10.1111/j.1540-6261.1973.tb01415.x

Cited by 1,436 publications

(980 citation statements)

References 6 publications

(11 reference statements)

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“…goes back to Kraus and Litzenberger (1973) who weigh bankruptcy costs against the benefits of interest tax shields. The benefits of debt also include the mitigation of agency problems.…”

Section: Introductionmentioning

confidence: 99%

When does leverage hurt productivity growth? A firm-level analysis

Coricelli

Driffield

Pal

et al. 2012

Journal of International Money and Finance

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Abstract:In the wake of the global financial crisis, several macroeconomic contributions have highlighted the risks of excessive credit expansion. In particular, too much finance can have a negative impact on growth. We examine the microeconomic foundations of this argument, positing a non-monotonic relationship between leverage and firm-level productivity growth in the spirit of the trade-off theory of capital structure. A threshold regression model estimated on a sample of Central and Eastern European countries confirms that TFP growth increases with leverage until the latter reaches a critical threshold beyond which leverage lowers TFP growth. This estimate can provide guidance to firms and policy makers on identifying "excessive" leverage. We find a similar non-monotonic relationship between leverage and proxies for firm value. Our results are a first step in bridging the gap between the literature on optimal capital structure and the wider macro literature on the finance-growth nexus.

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“…goes back to Kraus and Litzenberger (1973) who weigh bankruptcy costs against the benefits of interest tax shields. The benefits of debt also include the mitigation of agency problems.…”

Section: Introductionmentioning

confidence: 99%

When does leverage hurt productivity growth? A firm-level analysis

Coricelli

Driffield

Pal

et al. 2012

Journal of International Money and Finance

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“…Selon Kraus & Litzenberger (1973), la structure financière d'une firme reflète un arbitrage entre les avantages fiscaux du financement par dette et les coûts de faillite anticipés. Cependant, certains auteurs prétendent que les coûts de faillite ne sont pas suffisamment élevés pour expliquer le faible endettement de plusieurs firmes (Warner, 1977, et Haugen & Senbet, 1978.…”

Section: Rivalité Oligopolistiqueunclassified

“…A chaque période, elles doivent financer un investissement en capacité avant d'entreprendre la production. En première période, chaque firme choisit sa structure financière en tenant compte des avantages fiscaux de la dette et des coûts de faillite anticipés, comme le suggèrent Kraus & Litzenberger (1973). Même si une faillite n'implique aucun coût direct, les imperfections du marché des produits peuvent entraîner d'importants coûts de faillite indirects en termes de profits futurs perdus.…”

Section: Rivalité Oligopolistiqueunclassified

Information et marchés financiers : une revue de littérature

Poitevin

2009

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RÉSUMÉCette revue de littérature étudie les problèmes d’information dans les marchés financiers. La première section établit un modèle de base qui étudie les effets des asymétries d’information sur le comportement des agents économiques et sur la nature de l’équilibre des marchés financiers. Dans la deuxième section, divers mécanismes incitatifs pouvant éliminer partiellement ou complètement les problèmes d’information sont ajoutés au modèle de base. Finalement, le rôle stratégique de la structure financière est étudiée dans la dernière section.

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“…This is while practical results show at many times, companies prefer debt financing. In justifying this behavior, Kraus and Litzenberger (1973) presented statistic trade-off theory states that increasing the weight of debt in the capital structure, increases the risk of bankruptcy resulting from the company's inability to repay annual interest and principal payments on the debt. In other words, companies that use the trade-off theory model will consider the target leverage and adjust the company's direction to it.…”

Section: Trade-off Theorymentioning

confidence: 99%

Determinants of Capital Structure and Speed of Adjustment: Evidence from Iran and Australia

Kythreotis¹,

Nouri²,

Soltani³

2017

IJBA

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This study investigated different companies' capital structures using a comparative approach in a developing country (Iran) and a developed country (Australia). The purpose of this study was to identify the factors affecting the capital structure based on the company's characteristics in Iran and Australia. The main characteristics of the companies used in this research are mainly based on the variables used in Pecking order theory and the Trade-off theory namely tangibility, firm size, profitability, and business risk. Three other variables including liquidity, asset utilization ratio and speed of adjustment were also investigated. Two indicators of total debt ratio and long-term debt ratio have been used as corporate leverage index. The population of this study included 178 Iranian companies listed on Iran's stock exchange and 187 Australian companies listed on Australia's stock exchange from 2009 to 2015. To test the hypotheses, Panel data and Eviews software were used. To ensure robustness of the results, the speed of adjustment was estimated using GMM and OLS (with fixed and random effects).The results of this study showed that dynamic trade-off theory could better explain the changes in capital structure in Iran and Australia. The results also revealed significant differences in factors affecting the capital structure in Iran and Australia.

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A State‐preference Model of Optimal Financial Leverage

Cited by 1,436 publications

References 6 publications

When does leverage hurt productivity growth? A firm-level analysis

When does leverage hurt productivity growth? A firm-level analysis

Information et marchés financiers : une revue de littérature

Determinants of Capital Structure and Speed of Adjustment: Evidence from Iran and Australia

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