An Ebit-based Model of Dynamic Capital Structure*
نویسندگان
چکیده
Most capital structure models assume that the decision of how much debt to issue is a static choice. In practice, however, firms adjust outstanding debt levels in response to changes in firm value. In this article, we solve for the optimal dynamic capital strategy of a firm and investigate the implications for optimal leverage ratios and the magnitude of the tax benefits to debt. Below, we consider only the option to increase future debt levels. While in theory management can both increase and decrease future debt levels, Gilson (1997) finds that transactions costs discourage debt reductions outside of Chapter 11. In addition, equity’s ability to
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