Publication

Credit market frictions and capital structure dynamics

Semyon Malamud, Erwan Morellec, Julien Hugonnier
2015
Journal Articles

Résumé

We study the implications of credit market frictions for the dynamics of corporate capital structure and the risk of default of corporations. To do so, we develop a dynamic capital structure model in which firms face uncertainty regarding their ability to raise funds in credit markets and have to search for investors when seeking to adjust their capital structure. We provide a general analysis of shareholders' dynamic financing and default decisions, show when Markov perfect equilibria in financing and default barrier strategies exist, and when uniqueness can be achieved. We then use the model to generate a number of novel testable implications relating credit market frictions to target leverage, the pace and size of capital structure changes, creditor turnover, and the likelihood of default. (c) 2014 Elsevier Inc. All rights reserved.

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https://infoscience.epfl.ch/entities/publication/b4515596-e06a-4174-9e8f-535e74ea9318

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Semyon Malamud, Erwan Morellec, Julien Hugonnier
2015
Journal Articles

Résumé

Source officielle

https://infoscience.epfl.ch/entities/publication/b4515596-e06a-4174-9e8f-535e74ea9318

À propos de ce résultat

Concepts associés (21)

Capital structure

In corporate finance, capital structure refers to the mix of various forms of external funds, known as capital, used to finance a business. It consists of shareholders' equity, debt (borrowed funds), and preferred stock, and is detailed in the company's balance sheet. The larger the debt component is in relation to the other sources of capital, the greater financial leverage (or gearing, in the United Kingdom) the firm is said to have.

Trade-off theory of capital structure

The trade-off theory of capital structure is the idea that a company chooses how much debt finance and how much equity finance to use by balancing the costs and benefits. The classical version of the hypothesis goes back to Kraus and Litzenberger who considered a balance between the dead-weight costs of bankruptcy and the tax saving benefits of debt. Often agency costs are also included in the balance. This theory is often set up as a competitor theory to the pecking order theory of capital structure.

Credit default swap

Les couvertures de défaillance ou dérivés sur événement de crédit ou permutations de l'impayé, plus connus sous leur nom et abréviation anglais credit default swaps (CDS), sont des contrats de protection financière entre acheteurs et vendeurs, qui furent développés à partir de 1994 au sein de la banque JP Morgan. L'acheteur de protection verse une prime ex ante annuelle calculée sur le montant notionnel de l'actif à couvrir souvent dit de référence ou sous-jacent (ce montant étant également appelé encours notionnel du CDS), au vendeur de protection qui promet de compenser ex post les pertes de l'actif de référence en cas dévénement de crédit précisé dans le contrat.

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