We analyze debt choice in light of taxes and moral hazard. The model features an infinite sequence of nonzero-sum stochastic differential games between equity and debt. Closed-form expressions are derived for all contingent-claims. If equity can increase volatility without reducing asset drift, callable bonds with call premia are optimal. Although callable bonds induce risk shifting, call premi...

Extant theory claims a firm's information environment impacts the choice between debt and equity financing. However, empirical evidence supporting this contention is limited. We evaluate this relation within the context of Regulation FD (Reg FD) which prohibited the use of selective disclosure. We find firms with high proprietary costs of public disclosure are more likely to resort to debt fina...

In this paper, I analyze the role of equity and debt linked contracts in a monopoly setting. I show that the equity contract dominates the debt linked contracts because it attracts higher ability entrepreneurs and provides more profit to the monopolist. I also show that the social welfare that results from the equity contract exceeds those derived from debt financial instruments. ∗I thank Josh ...

This article presents a new methodology for estimating recovery rates and the (pseudo) default probabilities implicit in both debt and equity prices. In this methodology, recovery rates and default probabilities are correlated and depend on the state of the macroeconomy. This approach makes two contributions: First, the methodology explicitly incorporates equity prices in the estimation procedu...

The results show that (1) the average value of current ratio (CR) is 80.64% (2) debt to equity (DER) 1.08% (3) total assets turnover (TATO) 88.75% (4) Average Return On Asset (ROA) 10.12% (5) Sales Growth (SG) (6) Price Book Value (PBV) 2.24% (7) Dividend Payout Ratio (DPR) 41.50% (8) Current (CR), Debt Equity (DER), Total Turnover (TATO), on Assets (ROA), and together (simultaneously) have an ...

In the coal industry world with intense competition, it causes competition to develop and involves importance of organization's monetary exhibition. Concentrating on performance is vital in terms solvency, liquidity solvency ratios. This study expects decide impact CR, DER DAR, ROA mining companies. It hoped that will provide knowledge about DER, DAR ROA. research form quantitative descriptive ...

This study examines the contracting benefits of accounting conservatism on international debt and equity markets. Results show that firms domiciled in countries with more conservative financial reporting systems have significantly lower cost of debt and equity capital, after controlling for differences in legal institutions and securities regulations. I use one-year-ahead interest rate to measu...

This paper studies macroeconomic conditions and ...nancing decisions of ...rms that face various degrees of agency problems. A calibrated model is developed that explains the pronounced counter-cyclical leverage patterns observed for ...rms that access public capital markets. It relates these patterns to debt and equity issues. Moreover, it explains why leverage and debt issues do not exhibit t...

Firm financial performance is essential for corporate survival and prosperity. Financial leverage may be used to enhance performance, but it can also occasion distress bankruptcy if not carefully managed. At the Nairobi Securities Exchange, a number of firms face poor distress, commonly associated with excessive bankruptcy. The purpose this study was determine effect debt-Equity ratio on listed...

Most traditional studies of R&D do not consider that the use of leverage to finance R&D may affect total R&D expenditures in a patent race. We show that debt acts as a commitment to a smaller amount of total R&D spending (debt+equity) than would occur if firms were entirely equity financed. A commitment to lower R&D expenditure can be strategically beneficial; under a flow-cost model, debt indu...