The Market Value of Debt, Market Versus Book Value of Debt, and Returns to Assets

Richard J. Sweeney, Arthur D. Warga and Drew Winters

Financial Management, 1997, vol. 26, issue 1

Abstract: Empirical studies usually measure the value of debt based on book rather than market value, even though the underlying theory is almost always based on market values. This paper documents how using book value to measure debt can distoret debt-equity rations and cost of capital calculations.

Date: 1997
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