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Cited by 296

The DOI matches its Crossref record; 6 of the 6 references it cites were found in a registry or an index.

Are Firms Underleveraged? An Examination of the Effect of Leverage on Default Probabilities

MOLINA, CARLOS A.·2005·The Journal of Finance
DOI 10.1111/j.1540-6261.2005.00766.x
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Abstract

A commonly held view in corporate finance is that firms are less leveraged than they should be, given the potentially large tax benefits of debt. In this paper, I study the effect of firms' leverage on default probabilities as represented by the firms' ratings. Using an instrumental variable approach, I find that the leverage's effect on ratings is three times stronger than it is if the endogeneity of leverage is ignored. This stronger effect results in a higher impact of leverage on the ex ante costs of financial distress, which can offset the current estimates of the tax benefits of debt.

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Metadata

Authors
MOLINA, C. A.
Venue
The Journal of Finance
Publisher
Wiley
Published
2005-05-03
Volume
60
Issue
3
Pages
1427-1459
ISSN
  • 0022-1082 (ISSN-L)
  • 1540-6261
DOI
10.1111/j.1540-6261.2005.00766.x
OpenAlex
W1978374797
Cited by
296
References
6
FWCI
43.15
Type
journal article
Language
en
Open access
closed

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CoChat. (2026). Citation check: Are Firms Underleveraged? An Examination of the Effect of Leverage on Default Probabilities. https://app.cochat.ai/papers/10.1111/j.1540-6261.2005.00766.x
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MOLINA, C. A. (2005). Are Firms Underleveraged? An Examination of the Effect of Leverage on Default Probabilities. The Journal of Finance. https://doi.org/10.1111/j.1540-6261.2005.00766.x

Data sources

Bibliographic data: Semantic Scholar, OpenAlex, Crossref.

Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).

Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.