The well-known weak empirical relationship between beta risk and the cost of equity--thebeta anomaly--generates a simple tradeoff theory: As firms lever up, the overall cost ofcapital falls as leverage increases equity beta, but as debt becomes riskier the marginalbenefit of increasing equity...

Higher-beta and higher-volatility equities do not earn commensurately higher returns, a pattern known as the risk anomaly. In this paper, we consider the possibility that the risk anomaly represents mispricing and develop its implications for corporate leverage. The risk anomaly generates a...

Much of empirical corporate finance focuses on sources of the demand for various forms of capital, not the supply. Recently, this has changed. Supply effects of equity and credit markets can arise from a combination of three ingredients: investor tastes, limited intermediation, and corporate...