Extension of the Model to Uncertainty

Thorsten Hens and Sabine Elmiger
Additional contact information
Thorsten Hens: University of Zurich
Sabine Elmiger: University of Zurich

Chapter 6 in Economic Foundations for Finance, 2019, pp 79-109 from Springer

Abstract: Abstract This chapter extends the model to uncertainty in order to explain the crucial difference between equity and debt. When households hold equity, they face future returns that tend to be high in good times and low in bad times. Thus, they demand a return on equity that is higher than the return on debt as a compensation for the pro-cyclical returns. When firms are maximizing their profits, they will use debt only if the future profits by the use of debt are larger than the costs in terms of interest payments on debt on average.

Date: 2019
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-030-05427-4_6

Ordering information: This item can be ordered from
http://www.springer.com/9783030054274

DOI: 10.1007/978-3-030-05427-4_6

Access Statistics for this chapter

More chapters in Springer Texts in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().