How can optimal leverage be explained

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The puzzle of optimal capital structure is that there appear to be cross-sectional regularities in the observed ratios of debt to equity of U.S. firms.

For example, the steel industry appears to carry a higher percentage of debt than the public accounting industry does. These same regularities appeared even before the existence of corporate income taxes. How can optimal leverage be explained without relying on the tax shield of debt or bankruptcy costs?

Reference no: EM131247373

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