Baker, Malcolm
[VerfasserIn]
;
Wurgler, Jeffrey
[Sonstige Person, Familie und Körperschaft];
Hoeyer, Mathias F.
[Sonstige Person, Familie und Körperschaft]National Bureau of Economic Research
Erschienen:
Cambridge, Mass: National Bureau of Economic Research, March 2016
Erschienen in:NBER working paper series ; no. w22116
Umfang:
1 Online-Ressource
Sprache:
Englisch
DOI:
10.3386/w22116
Identifikator:
Reproduktionsnotiz:
Hardcopy version available to institutional subscribers
Entstehung:
Anmerkungen:
Mode of access: World Wide Web
System requirements: Adobe [Acrobat] Reader required for PDF files
Beschreibung:
Higher-beta and higher-volatility equities do not earn commensurately higher returns, a pattern known as the risk anomaly. In this paper, we consider the possibility that the risk anomaly represents mispricing and develop its implications for corporate leverage. The risk anomaly generates a simple tradeoff theory: At zero leverage, the overall cost of capital falls as leverage increases equity risk, but as debt becomes riskier the marginal benefit of increasing equity risk declines. We show that there is an interior optimum and that it is reached at lower leverage for firms with high asset risk. Empirically, the risk anomaly tradeoff theory and the traditional tradeoff theory are both consistent with the finding that firms with low-risk assets choose higher leverage. More uniquely, the risk anomaly theory helps to explain why leverage is inversely related to systematic risk, holding constant total risk; why leverage is inversely related to upside risk, not just downside risk; why numerous firms maintain low or zero leverage despite high marginal tax rates; and, why other firms maintain high leverage despite little tax benefit