economics Paradigm Challenge

Tech companies don't have much debt because they're terrified of 'bad things coming in threes,' which old models ignored.

March 19, 2026

Original Paper

When Losses Come in Clusters: Operational Risk and Optimal Capital Structure

Vladimir Manaev

SSRN · 6306798

The Takeaway

Standard finance models suggest tech firms should have 63% debt, but they actually keep it around 17%. This paper shows they are right: because operational losses like cyberattacks 'cluster' together, traditional debt levels would lead to instant bankruptcy during a crisis.

From the abstract

Operational losses-cyber breaches, compliance failures, rogue tradingarrive in clusters, yet standard capital structure models treat them as independent shocks or ignore them entirely. I embed a Hawkes self-exciting jump process into the Leland [1994] trade-off framework. With Beta(η, 1) loss severities, equity, debt, and optimal leverage remain in closed form. The model nests Leland [1994] as a special case. A SaaS-sector calibration yields optimal leverage of 17%, broadly consistent with obser