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...

This paper examines the motives of debt issuance in hot-debt market periods and its impact on capital structure over the period 1970–2006. We find that perceived capital market conditions as favorable, an indication of market timing, and adverse selection costs of equity (i.e., information...

We offer evidence of a new stylized feature of corporate financing decisions: the tendency of managers to rely more on debt financing when earnings prospects are poor. We term this 'leaning against the wind' and consider three possible explanations: market timing, precautionary financing, and...

This paper develops a model with the novel feature that firms can renegotiate debt both in and outside distress. We show that this feature is crucial for debt renegotiation models to explain corporate policies and debt prices. Specifically, the model reflects empirical credit spread patterns,...

La versión española de este artículo se puede encontrar en: 'http://ssrn.com/abstract=2685207' http://ssrn.com/abstract=2685207.We discuss the relevance of personal taxes on Tax Shields. Interest and taxes are the basis for defining an optimal capital structure. When personal taxes are...

The tax shield as present value of debt-related tax savings plays an important role in firm valuation. Driving the risk of future debt levels, the firm's strategy to adjust the absolute debt level to future changes of the firm value, labeled as (re-) financing policy, affects the value of tax...

The value of tax shields (VTS) defines the increase in the company's value as a result of the tax saving obtained by the payment of interest. However, there is no consensus in the existing literature regarding the correct way to compute the VTS. Most authors think of calculating the VTS in terms...

The recent interest in the valuation of the benefits from debt financing arises from the disagreement in the financial literature about the meaning of “value of tax shields.” Although it is accepted that the tax deductibility of interest increases the value of the firm, the correct valuation...

We study how the relative availability of bond and bank financing supply affects the firm's ability to borrow and to use its leverage to buffer shocks. We define a measure that proxies for the regional borrowing inflexibility in the availability of bank and bond financing: “debt...