Abstract

http://ssrn.com/abstract=1262464
 
 

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Citations (39)



 


 



Capital Structure Dynamics and Transitory Debt


Harry DeAngelo


University of Southern California - Marshall School of Business - Finance and Business Economics Department

Linda DeAngelo


University of Southern California - Marshall School of Business - Finance and Business Economics Department

Toni M. Whited


University of Rochester - Simon Business School; National Bureau of Economic Research

September 6, 2010


Abstract:     
Firms deliberately but temporarily deviate from permanent leverage targets by issuing transitory debt to fund investment. Leverage targets conservatively embed the option to issue transitory debt, with the evolution of leverage reflecting the sequence of investment outlays. We estimate a dynamic capital structure model with these features and find that it replicates industry leverage very well, explains debt issuances/repayments better than extant tradeoff models, and accounts for the leverage changes accompanying investment "spikes." It generates leverage ratios with slow average speeds of adjustment to target, which are dampened by intentional temporary movements away from target, not debt issuance costs.

Number of Pages in PDF File: 61

Keywords: capital structure, leverage dynamics, target leverage, transitory debt, financial flexibility

JEL Classification: G32, G31, D21, D92, E22, H25

working papers series





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Date posted: September 4, 2008 ; Last revised: September 8, 2010

Suggested Citation

DeAngelo, Harry and DeAngelo, Linda and Whited, Toni M., Capital Structure Dynamics and Transitory Debt (September 6, 2010). Available at SSRN: http://ssrn.com/abstract=1262464 or http://dx.doi.org/10.2139/ssrn.1262464

Contact Information

Harry DeAngelo (Contact Author)
University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6541 (Phone)
213-740-6650 (Fax)
Linda DeAngelo
University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
213-740-3868 (Phone)
213-740-6650 (Fax)
Toni M. Whited
University of Rochester - Simon Business School ( email )
Rochester, NY 14627
United States
HOME PAGE: http://toni.marginalq.com

National Bureau of Economic Research ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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