Abstract

http://ssrn.com/abstract=1120848
 
 

References (47)



 
 

Citations (3)



 


 



Capital Structure Choices


Eugene F. Fama


University of Chicago - Finance

Kenneth R. French


Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

June 24, 2011


Abstract:     
We examine three pairs of cross-section regressions that test predictions of the tradeoff model, the pecking order model, and models that center on market conditions. The regressions examine (i) the split of new outside financing between share issues and debt, (ii) the split of debt financing between short-term and long-term, and (iii) the split of equity financing between share issues and retained earnings. The pecking order does well until the early 1980s, when the share issues that are its bane become common. The adjustment of leverage to target predicted by the tradeoff model, and the response of equity financing to market valuations predicted by the market conditions model have statistically detectable but rather second-order effects on the split of new outside financing between share issues and debt. Targets for short-term debt seem to influence the mix of short-term versus long-term debt choices of smaller firms, but this targeting effect is weak to non-existent for large firms. Sticky dividends plague the predictions of the pecking order and the market conditions models about the split of equity financing between share issues and retained earnings.

Number of Pages in PDF File: 42

Keywords: Opportunistic Financing

JEL Classification: G32

working papers series


Download This Paper

Date posted: April 15, 2008 ; Last revised: September 22, 2011

Suggested Citation

Fama, Eugene F. and French, Kenneth R., Capital Structure Choices (June 24, 2011). Available at SSRN: http://ssrn.com/abstract=1120848 or http://dx.doi.org/10.2139/ssrn.1120848

Contact Information

Eugene F. Fama (Contact Author)
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)
Kenneth R. French
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 6,419
Downloads: 2,370
Download Rank: 2,471
References:  47
Citations:  3

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo2 in 0.375 seconds