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Capital Structure and Stock Returns


Ivo Welch


University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

June 16, 2003

Yale ICF Working Paper No. 02-03; EFMA 2002 London Meetings

Abstract:     
U.S. corporations do not use their debt and equity issuing and repurchasing activities to counteract the mechanistic effects of stock returns on their debt equity ratios. Thus, over 1-5 year horizons, stock returns can explain about 40% of debt ratio dynamics. Although corporate (net) issuing activity is lively, and although it can explain the remaining 60% of debt ratio dynamics (long-term debt issuing activity being most capital structure relevant), corporate issuing motives remain largely a mystery. When stock returns are accounted for, taxes, bankruptcy costs, and many other proxies used in the literature, play at best a very modest role in explaining capital structure.

Number of Pages in PDF File: 35

JEL Classification: G24

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Date posted: January 25, 2002  

Suggested Citation

Welch, Ivo, Capital Structure and Stock Returns (June 16, 2003). Yale ICF Working Paper No. 02-03; EFMA 2002 London Meetings. Available at SSRN: http://ssrn.com/abstract=298196 or http://dx.doi.org/10.2139/ssrn.298196

Contact Information

Ivo Welch (Contact Author)
University of California, Los Angeles (UCLA) ( email )
405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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