Izhakian, Yehuda. <br/><br/>
Ambiguity and the Tradeoff Theory of Capital Structure / 
Yehuda Izhakian, David Yermack, Jaime F. Zender. 
 - Cambridge, Mass.  National Bureau of Economic Research  2016. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w22870 .
 - Working Paper Series (National Bureau of Economic Research)  no. w22870. .
<br/><br/> November 2016. 
<br/><br/> We examine the impact of ambiguity, or Knightian uncertainty, on the capital structure decision, using a static tradeoff theory model in which agents are both ambiguity and risk averse. The model confirms the well-known result that greater risk--the uncertainty over outcomes--leads firms to decrease leverage. Conversely, the model indicates that greater ambiguity--the uncertainty over the probabilities associated with the outcomes--leads firms to increase leverage. Using a theoretically based measure of ambiguity, our empirical analysis presents evidence consistent with these notions, showing that ambiguity has an important and distinct impact on capital structure. 
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