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    Equity Mispricing and Leverage Adjustment Costs

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    Equity Mispricing and Leverage Adjustment Costs.pdf (233.1Kb)
    Issue Date
    2012-06
    Author
    Warr, Richard S.
    Elliott, William
    Koeter-Kant, Johanna
    Öztekin, Özde
    Publisher
    Cambridge University Press
    Type
    Article
    Article Version
    Scholarly/refereed, publisher version
    Metadata
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    Abstract
    We find that equity mispricing impacts the speed at which firms adjust to their target leverage (TL) and does so in predictable ways depending on whether the firm is over- or underlevered. For example, firms that are above their TL and should therefore issue equity (or retire debt) adjust more rapidly toward their target when their equity is overvalued. However, when a firm is undervalued but needs to reduce leverage, the speed of adjustment is much slower. Our findings support the role of equity mispricing as an important factor that alters the cost of making capital structure adjustments.
    Description
    COPYRIGHT 2012, MICHAEL G. FOSTER SCHOOL OF BUSINESS, UNIVERSITY OF WASHINGTON, SEATTLE, WA 98195
    URI
    http://hdl.handle.net/1808/10177
    DOI
    https://doi.org/10.1017/S0022109012000051
    Collections
    • School of Business Scholarly Works [212]
    Citation
    Richard S. Warr, William B. Elliott, Johanna Koëter-Kant and Özde Öztekin (2012). Equity Mispricing and Leverage Adjustment Costs. Journal of Financial and Quantitative Analysis, 47, pp 589-616 http://dx.doi.org/10.1017/S0022109012000051

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    Contact KU ScholarWorks
    785-864-8983
    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    785-864-8983

    KU Libraries
    1425 Jayhawk Blvd
    Lawrence, KS 66045
    Image Credits
     

     

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