This paper develops a model of dynamic capital structure choice in the presence of recapitalization costs. The theory provides the optimal dynamic recapitalization policy as a function of firm-specific characteristics. We find that even small recapitalization costs lead to wide swings in a firm's debt ratio over time. Rather than static leverage measures, we use the observed debt ratio range of a firm as an empirical measure of capital structure relevance. The results of empirical tests relating firms' debt ratio ranges to firm-specific features strongly support the theoretical model of relevant capital structure choice in a dynamic setting.
No takes yet. Share an insight, caveat, or question.
Fischer et al. (1989) studied this question.
Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context: