Leverage Dynamics without Commitment
Published in The Journal of Finance • Jan 13, 2021
NobleIDNI1P11W43R61S65
Authors:,
PETER M. DEMARZO
ZHIGUO HE
Abstract
ABSTRACT We characterize equilibrium leverage dynamics in a trade‐off model in which the firm can continuously adjust leverage and cannot commit to a policy ex ante. While the leverage ratchet effect leads shareholders to issue debt gradually over time, asset growth and debt maturity cause leverage ...
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