Operating leverage increases profitability and reduces optimal financial leverage. Thus, operating leverage generates a negative relation between profitability and financial leverage that is thought to be inconsistent with the trade-off theory, but is commonly observed in the data. We...

Debt, and in particular, short-term debt have the potential to discipline managers. We examine the role of the board in making financing decisions that provide this discipline. Specifically, given a firm's characteristics, we predict that stronger boards will force the firm to hold more debt and...

Using a standardized methodology, we empirically evaluate 56 determinants of capital structure proposed in the literature in terms of economic significance, statistical significance, identification, and intertemporal stability. We organize the determinants into a framework in which each proposed...

We investigate the repercussions of credit market mistakes for a firm's borrowing and investment decisions. When credit ratings are relatively optimistic, we find evidence that firms take advantage of inaccuracies by issuing more debt, increasing leverage, rolling over more debt and lengthening...