Debt Value and Capital Structure with Firm's Net Cash Payouts
In this paper a structural model of corporate debt is analyzed following an approach of optimal stopping problem. We extend Leland model  introducing a dividend paid to equity holders and studying its effect on corporate debt and optimal capital structure. Varying the parameter affects not only the level of endogenous bankruptcy, which is decreased, but modifies the magnitude of a change on the endogenous failure level as a consequence of an increase in risk free rate, corporate tax rate, riskiness of the firm and coupon payments. Concerning the optimal capital structure, the introduction of dividends allows to obtain results more in line with historical norms: lower optimal leverage ratios and higher yield spreads, compared to Leland's  results.
|Date of creation:||Aug 2010|
|Contact details of provider:|| Postal: Via delle Pandette 9 50127 - Firenze - Italy|
Phone: +39 055 2759707
Fax: +39 055 2759913
Web page: http://www.disei.unifi.it/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:flo:wpaper:2010-10. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michele Gori)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.