Corporate capital structure actions

Murray Z Frank, Tao Shen

Research output: Contribution to journalArticle

Abstract

This paper is a study of the financing actions by firms to adjust leverage: debt reductions, stock sales, debt issues, and stock purchases. Each type of action is positively autocorrelated. The standard empirical models of corporate leverage produce leverage targets that do not correctly predict actual debt issues and stock sales. Firm-specific time-series regressions with the logarithm of firm assets and market-to-book as regressors, correctly predict these patterns. The estimates imply that on average firms adjust toward their target much faster than generally understood, closing about half of the leverage gap in a year.

Original languageEnglish (US)
Pages (from-to)384-402
Number of pages19
JournalJournal of Banking and Finance
Volume106
DOIs
StatePublished - Sep 2019

Fingerprint

Leverage
Capital structure
Debt
Purchase
Book-to-market
Empirical model
Assets
Financing
Debt reduction

Keywords

  • Corporate leverage target
  • Debt issues
  • Debt reductions
  • Stock purchases
  • Stock sales

Cite this

Corporate capital structure actions. / Frank, Murray Z; Shen, Tao.

In: Journal of Banking and Finance, Vol. 106, 09.2019, p. 384-402.

Research output: Contribution to journalArticle

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