Required Return on Equity when Capital Structure is Dynamic

We explore the firm's required return on equity when it has a target debt ratio (TDR). We show that a firm's expected return is increasing in the product of the distance between its debt ratio (DR) from its TDR (E[TDR-DR]), its speed of adjustment, and the spread of its tax benefits of debt over its bankruptcy costs of debt. Our empirical tests validate that high distance firms' returns outperform those of low distance firms

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Year of publication:	2019
Authors:	Dai, Na
Other Persons:	Piccotti, Louis R. (contributor)
Publisher:	[2019]: [S.l.] : SSRN
Subject:	Kapitalstruktur \| Capital structure \| Theorie \| Theory \| Kapitaleinkommen \| Capital income

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