کد مقاله | کد نشریه | سال انتشار | مقاله انگلیسی | نسخه تمام متن |
---|---|---|---|---|
960213 | 929423 | 2006 | 39 صفحه PDF | دانلود رایگان |
Leverage raises stock volatility, driving a wedge between the cost of debt to shareholders and the cost to undiversified, risk-averse managers. I quantify these “volatility costs” of debt and examine their impact on financing decisions. I find that: (1) the volatility costs of debt can be large for executives exposed to firm-specific risk; (2) for a range of empirically relevant parameters, higher option ownership tends to increase, not decrease, the volatility costs of debt; and (3) for managers with stock options, a stock price increase typically raises volatility costs. For a large sample of US firms, I find evidence that volatility costs affect both the level of and short-term changes in debt, and that volatility costs help explain a firm's choice between debt and equity.
Journal: Journal of Financial Economics - Volume 82, Issue 3, December 2006, Pages 551–589