TY  - JOUR
AU  - Ju,Nengjiu
AU  - Parrino,Robert
AU  - Poteshman,Allen M.
AU  - Weisbach,Michael S.
TI  - Horses and Rabbits? Optimal Dynamic Capital Structure from Shareholder and Manager Perspectives
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9327
PY  - 2002
Y2  - November 2002
UR  - http://www.nber.org/papers/w9327
L1  - http://www.nber.org/papers/w9327.pdf
N1  - Author contact info:
Robert Parrino
McCombs School of Business
University of Texas
Austin, TX 78712
Tel: 512/471-5788
E-Mail: Parrino@mail.utexas.edu

Allen Poteshman
D.E. Shaw & Co.
39th Floor, Tower 45
120 West Forty-Fifth Street
New York, NY  10036
Tel: (217) 778-6064
E-Mail: poteshman@gmail.com

Michael Weisbach
Department of Finance
Fisher College of Business
Ohio State University
2100 Neil Ave.
Columbus, OH  43210
Tel: 614 292 3264
E-Mail: weisbach.2@osu.edu
AB  - This paper examines optimal capital structure choice using a dynamic capital structure model that is calibrated to reflect actual firm characteristics. The model uses contingent-claim methods to value interest tax shields, allows for reorganization in bankruptcy, and maintains a long-run target debt/equity ratio by refinancing maturing debt. Using this model we calculate optimal capital structures in a realistic representation of the traditional  tradeoff' model. In contrast to previous research, the resulting optimal capital structures do not imply that firms tend to use too little leverage in practice. We also estimate the costs borne by a firm whose capital structure deviates from its optimal,  target' debt/equity ratio. The costs of moderate deviations are relatively small, suggesting that a policy of adjusting leverage only when it deviates substantially from a target debt/equity ratio is likely to be reasonable for most firms.
ER  -