Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5085441 | International Review of Financial Analysis | 2006 | 17 Pages |
Abstract
This paper extends the stationary-leverage-ratio model to incorporate a time-dependent target leverage ratio. The theoretical hypothesis of the existence of a time-dependent target leverage ratio reflects the movement of a firm's initial target ratio toward a long-term target ratio over time. Using some simple scenarios about the time-dependence of the target leverage ratio, the numerical results show that the incorporation of the hypothesis into the stationary-leverage-ratio model is capable of producing term structures of probabilities of default that are consistent with some empirical findings. The results provide some evidences to support the hypothesis.
Related Topics
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Economics and Econometrics
Authors
C.H. Hui, C.F. Lo, M.X. Huang,