Beta Geared and Ungeared: The Case of Active Debt Management |
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| Authors: | Tony R Appleyard Norman C Strong |
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| Institution: | Department of Accounting and Management , University of Newcastle-upon-Tyne |
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| Abstract: | This paper extends the results of Buckley (1981) and Schnabel (1983) on the relationship between geared and ungeared betas. We contrast a passive debt management policy with an active debt management policy and derive the relevant beta degearing formulae for the case of an MM perfect capital market with corporation tax. We also extend these results to a world with personal taxes and debt related costs. |
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