Are corporates ’ target leverage ratios time - dependent ?
نویسنده
چکیده
This paper extends the stationary-leverage-ratio model to incorporate a time-dependent target leverage ratio. The theoretical hypothesis of the existence of a time-dependent target leverage ratio reflects the movement of a firm’s initial target ratio toward a long-term target ratio over time. Using some simple scenarios about the time-dependence of the target leverage ratio, the numerical results show that the incorporation of the hypothesis into the stationary-leverage-ratio model is capable of producing term structures of probabilities of default that are consistent with some empirical findings. The results provide some evidences to support the hypothesis. D 2005 Elsevier Inc. All rights reserved. JEL classification: G21; G28; G13
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