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
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