Tradeoff Theory and Leverage Dynamics of High-Frequency Debt Issuers
42 Pages Posted: 17 Mar 2013 Last revised: 24 Apr 2018
Date Written: April 16, 2018
We examine whether tradeoff theory explains leverage dynamics of high-frequency net-debt issuers (net of debt rollovers). Our issue-frequency sort screens out low-leverage firms who rarely issue and extremely high-leverage firms who may not issue due to financial distress. The remaining industrial firms raise the bulk of all public and private debts. The persistence of their debt-issuance program over the public lifecycle strongly suggests both low issuance costs and high debt-financing benefits. Nevertheless, we find little evidence to suggest that high-frequency net-debt issuers actively manage leverage towards a capital structure target.
Keywords: Capital structure, external finance, debt issues, equity issues, issue costs, leverage, cash-flow identity
JEL Classification: G32
Suggested Citation: Suggested Citation