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Topic
Publication year
Corporate Debt Value, Bond Covenants, and Optimal Capital Structure.
Resource type
Author/contributor
- Leland, Hayne E (Author)
Title
Corporate Debt Value, Bond Covenants, and Optimal Capital Structure.
Abstract
This article examines corporate debt values and capital structure in a unified analytical framework. It derives closed-form results for the value of long-term risky debt and yield spreads, and for optimal capital structure, when firm asset value follows a diffusion process with constant volatility. Debt values and optimal leverage are explicitly linked to firm risk, taxes, bankruptcy costs, risk-free interest rates, payout rates, and bond covenants. The results elucidate the different behavior of junk bonds versus investment-grade bonds, and aspects of asset substitution, debt repurchase, and debt renegotiation.
Publication
The Journal of Finance
Volume
49
Issue
4
Pages
1213-52
Date
1994-09
Citation
Leland, H. E. (1994). Corporate Debt Value, Bond Covenants, and Optimal Capital Structure. The Journal of Finance, 49, 1213–1252.
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