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Capital structure decisions and the optimal design of corporate market debt prograams

Lionel Martellini, Vincent Milhau and Andrea Tarelli

Journal of Corporate Finance, 2018, vol. 49, issue C, 141-167

Abstract: This paper provides a joint quantitative analysis of capital structure decisions (debt versus equity) and debt structure decisions (fixed-rate debt versus floating-rate debt or inflation-linked debt) in a continuous-time setting. We show that optimizing the debt structure has an impact on capital structure decisions, and leads to increases in leverage ratios compared to a pure fixed-rate debt program. We also find that for realistic parameter values, jointly optimizing the debt and capital structures generates a significant increase in firm value with respect to a situation where only the capital structure is optimized.

Keywords: Capital structure; Debt structure; Inflation risk; Interest rate risk (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:corfin:v:49:y:2018:i:c:p:141-167