Optimal Capital Structure and the Term Structure of Interest Rates
In this paper we study corporate debt values, capital structure, and the term structure of interest rates in a unified framework. We employ numerical techniques to compute the firm's optimal capital structure and the value of its long-term risky debt and yield spreads when the value of the firm's unleveraged assets and the instantaneous default-free interest rate are risk factors. Debt and leveraged firm value are thus explicitly linked to properties of the firm's unleveraged assets, the term structure of default-free interest rates, taxes, bankruptcy costs, payout rates, and bond covenants. The results clarify the relationship between a firm's capital structure and movements in the term structure and other important aspects of the capital structure decision
References listed on IDEAS
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- Stohs, Mark Hoven & Mauer, David C, 1996. "The Determinants of Corporate Debt Maturity Structure," The Journal of Business, University of Chicago Press, vol. 69(3), pages 279-312, July.
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- John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005.
"A Theory Of The Term Structure Of Interest Rates,"
World Scientific Book Chapters,
in: Theory Of Valuation, chapter 5, pages 129-164
World Scientific Publishing Co. Pte. Ltd..
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- Leland, Hayne E & Toft, Klaus Bjerre, 1996. " Optimal Capital Structure, Endogenous Bankruptcy, and the Term Structure of Credit Spreads," Journal of Finance, American Finance Association, vol. 51(3), pages 987-1019, July.
- Hayne E. Leland and Klaus Bjerre Toft., 1995. "Optimal Capital Structure, Endogenous Bankruptcy, and the Term Structure of Credit Spreads," Research Program in Finance Working Papers RPF-259, University of California at Berkeley.
- Longstaff, Francis A & Schwartz, Eduardo S, 1995. " A Simple Approach to Valuing Risky Fixed and Floating Rate Debt," Journal of Finance, American Finance Association, vol. 50(3), pages 789-819, July.
- Chris Downing & Richard Stanton & Nancy Wallace, 2005. "An Empirical Test of a Two-Factor Mortgage Valuation Model: How Much Do House Prices Matter?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 33(4), pages 681-710, December. Full references (including those not matched with items on IDEAS)
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