Optimal Capital Structure with Imperfect Competition

Egor Matveyev, Alexei Zhdanov

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


We develop a model of optimal capital structure in imperfectly competitive markets by focusing on a duopoly. The model endogenizes both the financing and investment decisions of firms. We show that in equilibrium the industry leader uses debt conservatively, while the follower uses debt more aggressively and, as the result, defaults first. The model generates novel predictions about the leverage choices of the leader and the follower, their default likelihood, and the degree of leverage dispersion between competing firms. These predictions are strongly supported by the data.

Original languageEnglish (US)
Pages (from-to)314-363
Number of pages50
JournalReview of Corporate Finance Studies
Issue number2
StatePublished - May 1 2022

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Finance
  • Economics and Econometrics


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