The median U.S. non-regulated firm reports a 47 percent decline in leverage ratio between 1980 and 2010. We investigate whether the cost-benefit tradeoff to shareholders, captured by the valuation impact of an additional dollar of debt on owners' equity, is an explanation for the observed change...

Previous studies that test the tradeoff theory commonly use one of the following debt ratio measures to proxy for a firm's hypothesized optimal ratio: firm's time-series mean leverage, moving average leverage based on a firm's historical debt ratios, industry median leverage, and predicted...

I investigate the relationship between declining collateral and increasing low leverage firms by separating it from a reduced propensity to finance with debt. I find that the annual decline in the collateral-to-asset ratio is approximately 1.0% between 1977 and 2010, and that firms with the...