IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v25y1990i03p377-386_00.html
   My bibliography  Save this article

The Relation between Risk and Optimal Debt Maturity and the Value of Leverage

Author

Listed:
  • Wiggins, James B.

Abstract

This paper considers the capital structure and debt maturity choice for a value-maximizing corporation. In the model, interest expense is tax deductible, bankruptcy is costly, and debt is fairly priced at issue. In contrast to the results of Kane, Marcus, and McDonald (1985), optimal debt maturity does not always approach zero in the absence of transaction costs, and is increasing in the volatility of the assets of the firm. The model predicts a positive association between the value of leverage and total risk in some circumstances.

Suggested Citation

  • Wiggins, James B., 1990. "The Relation between Risk and Optimal Debt Maturity and the Value of Leverage," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(3), pages 377-386, September.
    • Handle: RePEc:cup:jfinqa:v:25:y:1990:i:03:p:377-386_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109000007249/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. M. Ameziane Lasfer, 1995. "Agency costs, taxes and debt: The UK evidence," European Financial Management, European Financial Management Association, vol. 1(3), pages 265-285, November.
    2. Orman, Cüneyt & Köksal, Bülent, 2017. "Debt maturity across firm types: Evidence from a major developing economy," Emerging Markets Review, Elsevier, vol. 30(C), pages 169-199.
    3. Manak Gupta & Alice Lee, 2006. "An Integrated Model of Debt Issuance, Refunding, and Maturity," Review of Quantitative Finance and Accounting, Springer, vol. 26(2), pages 177-199, March.
    4. Moyen, Nathalie, 2007. "How big is the debt overhang problem?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(2), pages 433-472, February.
    5. Cuneyt Orman & Bulent Koksal, 2015. "Structure Of Debt Maturity Across Firm Types," IPEK Working Papers 1504, Ipek University, Department of Economics.
    6. Daniševská, P. & de Jong, A. & Verbeek, M.J.C.M., 2004. "Do Banks Influence the Capital Structure Choices of Firms?," ERIM Report Series Research in Management ERS-2004-040-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    7. Musalem, Alberto R. & Impavido, Gregorio & Tressel, Thierry, 2001. "Contractual savings, capital markets, and firms'financing choices," Policy Research Working Paper Series 2612, The World Bank.
    8. Sudipto Sarkar, 1999. "Illiquidity Risk, Project Characteristics, And The Optimal Maturity Of Corporate Debt," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(3), pages 353-370, September.
    9. Manak C. Gupta, 2016. "An Integrated Model for the Cost-Minimizing Funding of Corporate Activities over Time," Review of Economics & Finance, Better Advances Press, Canada, vol. 6, pages 1-18, November.
    10. Briozzo, Anahi & Vigier, Hernan, 2006. "LA ESTRUCTURA DE FINANCIAMIENTO PYME Una revisión del pasado y presente," MPRA Paper 5894, University Library of Munich, Germany.
    11. Steven A. Dennis & Ian G. Sharpe, 2005. "Firm Size Dependence in the Determinants of Bank Term Loan Maturity," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(1-2), pages 31-64.
    12. Karlyn Mitchell, 1993. "The Debt Maturity Choice: An Empirical Investigation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(4), pages 309-320, December.
    13. Orman, Cüneyt & Bülent, Köksal, 2015. "Structure of Debt Maturity across the Firm Type Spectrum," MPRA Paper 64860, University Library of Munich, Germany.
    14. Steven A. Dennis & Ian G. Sharpe, 2005. "Firm Size Dependence in the Determinants of Bank Term Loan Maturity," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(1‐2), pages 31-64, January.
    15. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    16. Hayne E. Leland., 1998. "Agency Costs, Risk Management, and Capital Structure," Research Program in Finance Working Papers RPF-278, University of California at Berkeley.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:25:y:1990:i:03:p:377-386_00. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.