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Estimating Risk-Adjusted Costs of Financial Distress


  • Heitor Almeida
  • Thomas Philippon


The search for the optimal, or value-maximizing, capital structure involves weighing the expected benefits of higher leverage against the expected "costs of financial distress." These costs include not only the direct costs of reorganization, but less quantifiable effects of financial trouble such as damage to the firm's reputation, the loss of key employees and customers, and the loss of value from forgone investment opportunities. Copyright (c) 2008 Morgan Stanley.

Suggested Citation

  • Heitor Almeida & Thomas Philippon, 2008. "Estimating Risk-Adjusted Costs of Financial Distress," Journal of Applied Corporate Finance, Morgan Stanley, vol. 20(4), pages 105-109.
  • Handle: RePEc:bla:jacrfn:v:20:y:2008:i:4:p:105-109

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