Review of Financial Studies Vol. 21 No. 4 2008
Why Leverage Affects Pricing
Abstract
[We explain and provide evidence for effects of leverage on pricing. Our model identifies two effects that either counteract or reinforce each other, depending on the debt maturity structure: (i) firms set higher prices (underinvest in market share) if they have more debt, and (ii) firms engage in dynamic risk-shifting by setting lower (higher) prices if the current debt obligation will be higher (lower) in the next period than in the present period. Using a unique dataset of owner-managed hotels in Austrian ski resorts, we provide empirical evidence of both effects.]
- Volume
- 21
- Issue
- 4
- Pages
- 1733-1765
- Sources
- bibtex:phds-export.bib