Comment: “The Dynamics of Corporate Debt Management, Decision Rules, and Some Empirical Evidence”

Rashmi B. Thakkar

Journal of Financial and Quantitative Analysis, 1974, vol. 9, issue 6, 1065-1066

Abstract: In a previous issue of this journal Boot and Frankfurter (hereafter B-F) published the results of their study on the optimal mix of short-and-long-term debt. While interesting, their results appear to be open to question on the following grounds:1. Use of wrong data: The short-term borrowing data used by B-F in their regression analysis include the following items which do not generally and, rightly so, belong to short-term debt:(a) Reserve for deferred or future income taxes,(b) Restricted surplus for deferred taxes,(c) Insurance reserves,(d) Surplus reserves,(e) Unamortised debt premium, and(f) Contributions for constructions.

Date: 1974
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