Capital structure decisions : an empirical study of structured credit models

Abstract

There are several issues with adapting dynamic structured credit models to be applicable for values observable in reality. To use the theories, and with that the models developed, to find optimal capital structures is challenging in many ways. No conclusion can be drawn from this thesis whether it is the theories that are imperfect, or companies not optimally financed. Some of the companies refinanced in a manner which could be in line with the dynamic optimal, while others lacked such indications. To find the optimal leverage ratio, by testing for the amount of debt optimal to issue in a restructuring, failed with respect to what is realistic. Possible weaknesses with existing models could be that they do not allow for the high volatility in EBIT which could be observed empirically. Work is still to be made, to use structured credit models as a decision tool for capital structure decisions. But the theories behind them could be of help to the people making the financing decisions.