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Capital structure decisions and the optimal design of corporate market debt prograams

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  • Martellini, Lionel
  • Milhau, Vincent
  • Tarelli, Andrea

Abstract

This paper provides a joint quantitative analysis of capital structure decisions (debt versus equity) and debt structure decisions (fixed-rate debt versus floating-rate debt or inflation-linked debt) in a continuous-time setting. We show that optimizing the debt structure has an impact on capital structure decisions, and leads to increases in leverage ratios compared to a pure fixed-rate debt program. We also find that for realistic parameter values, jointly optimizing the debt and capital structures generates a significant increase in firm value with respect to a situation where only the capital structure is optimized.

Suggested Citation

  • Martellini, Lionel & Milhau, Vincent & Tarelli, Andrea, 2018. "Capital structure decisions and the optimal design of corporate market debt prograams," Journal of Corporate Finance, Elsevier, vol. 49(C), pages 141-167.
    • Handle: RePEc:eee:corfin:v:49:y:2018:i:c:p:141-167
    DOI: 10.1016/j.jcorpfin.2017.11.011
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