underlevered

Our results also imply that offsetting the accumulated deviation from the target is not the primary reason for issuing or repurchasing equity. Equity repurchases follow periods of rising leverage deficit, but they fail to offset any significant portion of the accumulated deviation from the target. Equity issuers are underlevered rather than overlevered prior to the issue.

2004 October 1, Armen Hovakimian, “The Role of Target Leverage in Security Issues and Repurchases”, in The Journal of Business, volume 77, number 4, →DOI, page 1045 of 1041–1072

Faced with major investment shocks, underlevered firms are more likely to take advantage of debt financing opportunities because issuing debt is cost-efficient given the relatively low marginal adjustment costs in this case (Faulkender et al., 2012), and an underlevered firm faces a lower level of default risk than its overlevered counterpart.

2022 December 1, Hyun Joong Im, Robert Faff, Chang Yong Ha, “Uncertainty, investment spikes, and corporate leverage adjustments”, in Journal of Banking & Finance, volume 145, number 106649, →DOI