| Popis: |
We examine the importance of ambiguity, or Knightian uncertainty, in the capital structure decision. We develop a static trade off theory model in which agents are both risk averse and ambiguity averse. The model confirms the usual idea that increased risk - the uncertainty over known possible outcomes - leads firms to use less leverage. Conversely, greater ambiguity - the uncertainty over the probabilities associated with the outcomes - leads firms to increase leverage. Our empirical analysis provides results consistent with these predictions. |
