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How Stable are Corporate Capital Structures?Harry DeAngeloUniversity of Southern California - Marshall School of Business - Finance and Business Economics Department Richard RollUniversity of California, Los Angeles (UCLA) - Finance Area July 2011 Abstract: Capital structure stability is the exception, not the rule. Wide variation in book leverage, market leverage, and the net-debt ratio is the norm at publicly held industrial firms. In panel leverage regressions, firm fixed effects differ significantly across decades. Stability of the leverage cross section is short-lived. Cross-sectional migration is pervasive: 69.5% of firms listed 20-plus years have book leverage in at least three different quartiles, and 30.4% are in all four quartiles at different times over the average 20-year period. Stability occurs infrequently and mainly at low leverage, and is virtually always temporary.
Number of Pages in PDF File: 47 Keywords: capital structure stability, leverage target, leverage persistence JEL Classification: G32, G31, G35, G33 working papers seriesDate posted: March 19, 2011 ; Last revised: August 3, 2011Suggested CitationContact Information
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