TY  - UNPD
A1  - Berg, Tobias
A1  - Heider, Florian
T1  - Leverage and risk-taking in a dynamic model
N2  - This paper examines the dynamic relationship between firm leverage and risktaking. We embed the traditional agency problem of asset substitution within a multi-period model, revealing a U-shaped relationship between leverage and risktaking, evident in data from both the U.S. and Europe. Firms with medium leverage avoid risk to preserve the option of issuing safe debt in the future. This option is valuable because safe debt does not incur the expected cost of bankruptcy, anticipated by debt-holders due to future risk-taking incentives. Our model offers new insights on the interaction between companies' debt financing and their risk profiles.
T3  - SAFE working paper - 423 
KW  - leverage
KW  - risk-taking incentives
KW  - dynamic model
Y1  - 2024
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/71582
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-715829
UR  - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4883155
N1  - Funding: SAFE
PB  - SAFE
CY  - Frankfurt am Main
ER  -