Philippon examines firms’ capital structure empirically and theoretically. He finds that firm value does not exactly fit the static trade-off model. Specifically he finds that low levels of debt are not accompanied by as low of firm values as would be expected. However, in other areas, what we have been teaching seems exactly right: more growth options means less debt, highly profitable firms do have higher target debt ratios (even though they may not all be at the targets), and expected future financing deficits makes financial slack more valuable. Interestingly, he also finds some evidence that managerial power (as proxied by CEO tenure) is associated with lower levels of debt. READ IT!!! [FinanceProfessor.com Annotation]
Content: Article
Author: Thomas Philippon
Source: Social Science Research Network (SSRN)
Subject: Finance
Author: Thomas Philippon
Source: Social Science Research Network (SSRN)
Subject: Finance
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