We develop a dynamic trade-off model with endogenous choice of leverage, distributions, and real investment in the presence of a graduated corporate income tax, individual taxes on interest and corporate distributions, financial distress costs, and equity flotation costs. We explain several empirical findings inconsistent with the static trade-off theory. We show there is no target leverage ratio, firms can be savers or heavily levered, leverage is path dependent, leverage is decreasing in lagged liquidity, and leverage varies negatively with an external finance weighted average "Q". Using estimates of structural parameters, we find that simulated model moments match data moments. Copyright 2005 by The American Finance Association.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Erica X. N. Li & Dmitry Livdan & Lu Zhang, 2006.
"Optimal Market Timing,"
NBER Working Papers
12014, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Did you know? You can create a compilation of all publications of a group of people, say alumni of a program, your students or memers of an association.