Are large public firms underlevered? : an Australian context / by Hong Dianrong (Calvin).

Hong, Dianrong. (2008). Are large public firms underlevered? : an Australian context / by Hong Dianrong (Calvin). Honours Thesis, School of Business, The University of Queensland.

       
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Author Hong, Dianrong.
Thesis Title Are large public firms underlevered? : an Australian context / by Hong Dianrong (Calvin).
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 2008
Thesis type Honours Thesis
Total pages 101
Language eng
Subjects 15 Commerce, Management, Tourism and Services
Formatted abstract This purpose of this study is to conduct an observation study on large, public non-financial Australian firms to determine if these firms adhere to the trade off theory argument. Evidence in the US studies reveals that large profitable US firms are leaving money on the table by adopting overly conservative debt policy.

Two objectives are required in this paper to conduct this study. The first objective in this paper is to develop an early default prediction model to determine each sample firm's default probability as an input to the second model. The second objective is to develop a simulation model which estimates each sample firm's total tax benefit of debt based on the firm's default probability and historical earnings data.

Consistent with the US studies, the optimum leverage model in this paper suggests that large, public non-financial Australian firms are generally underlevered as well. However, the proportion of Australian firms classified as underlevered is much larger as compared to the US firms. This suggests that there are more Australian firms that adopt conservative debt policy and this may be due to the imputation tax system which arguably makes debt financing less attractive.

 
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Created: Wed, 03 Nov 2010, 15:54:29 EST by Mr Kevin Liang on behalf of The University of Queensland Library