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Capital Structure, Investment, and Fire Sales
| Content Provider | Semantic Scholar |
|---|---|
| Author | Gale, D. Gottardi, Piero |
| Copyright Year | 2014 |
| Abstract | We study a dynamic general equilibrium model in which firms choose their investment level and capital structure, trading off the tax advantages of debt against the risk of costly default. Bankruptcy costs are endogenous, as bankrupt firms are forced to liquidate their assets, resulting in a fire sale if the market is illiquid. When the corporate income tax rate is positive, firms have a unique optimal capital structure. In equilibrium, firms default with positive probability and their assets are liquidated at fire-sale prices. The equilibrium features underinvestment and is constrained inefficient. In particular there is too little debt and default. |
| Starting Page | 2502 |
| Ending Page | 2533 |
| Page Count | 32 |
| File Format | PDF HTM / HTML |
| DOI | 10.1093/rfs/hhv016 |
| Volume Number | 28 |
| Alternate Webpage(s) | http://apps.eui.eu/Personal/Gottardi/debt-equity-rev_25Oct1014_2sp.pdf |
| Alternate Webpage(s) | http://www.systemicrisk.ac.uk/sites/default/files/downloads/publications/dp-23.pdf |
| Alternate Webpage(s) | https://www.bis.org/events/conf140909/gale_gottardi_paper.pdf |
| Alternate Webpage(s) | https://iris.unive.it/retrieve/handle/10278/3671269/69048/Rev.%20Financ.%20Stud.-2015-Gale-2502-33.pdf |
| Alternate Webpage(s) | https://doi.org/10.1093/rfs%2Fhhv016 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
