Bond Finance and the Leverage Ratio

Alfred Guender

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: A binding pledgeable income constraint limits movements in the leverage ratio but permits some flexibility in the choice of bond versus loan finance in response to changes in key parameters. Due to the existence of distress costs of bond finance in the low payoff state, the share of bond finance remains low compared to more expensive loan finance under both constrained and unconstrained profit maximization.

Keywords: Bonds; Loans; Leverage ratio; Distress cost; Pledgeable income constraint (search for similar items in EconPapers)
JEL-codes: E44 G21 G32 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2022-06-01
New Economics Papers: this item is included in nep-cfn and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:22/11

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