Data di Pubblicazione:
2023
Abstract:
We study the sensitivity of optimal leverage to the level of the risk-free interest rate. Our trade-off model implies a heterogeneous response depending on the presence of a sponsor backing company debt. A highly-leveraged, backed company optimally increases debt when interest rates fall, while a company without a sponsor reduces it despite having lower initial leverage. This heterogeneity implies divergent bankruptcy probability and recovery-upondefault, in the same interest rate scenarios, for the two company types. We also show that a lower risk-free rate reduces the sponsor’s incentive to issue debt.
JEL Classification: G32, H32, L32
Tipologia CRIS:
07P-Working Paper
Keywords:
capital structure, tax-bankruptcy trade-off, default, LBO, subsidiaries,
securitization, restructurings, risk transfer
Elenco autori:
Giovanna Nicodano;
Luca Regis
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