On the Evolution of Corporate Capital Structures

38 Pages Posted: 14 Mar 2009 Last revised: 25 Feb 2015

See all articles by Daniel G. Arce

Daniel G. Arce

University of Texas at Dallas - Department of Economics & Finance

Douglas O. Cook

University of Alabama - Culverhouse College of Commerce & Business Administration

Robert L. Kieschnick

University of Texas at Dallas

Date Written: 2015

Abstract

Most, if not all, published theoretical models of capital structure decisions assume that all firms follow the same capital structure decision process or strategy. We argue that such an assumption is inconsistent with extant evidence. Instead we argue that there is heterogeneity in the decision processes and strategies that managers follow, and that they make adaptive adjustments to their strategies that are conditioned on the choices of other firms as well as their prior choices. Using data on U.S. corporate capital structures between 1965 through 2003, we find evidence that is consistent with our proposed alternative. Our characterization of the evolution of corporate capital structures emphasizes the roles of a firm’s initial capital structure and its competitors’ capital structure strategies.

Keywords: firm dynamics, capital structure, fractional variables

JEL Classification: D20, G32

Suggested Citation

Arce, Daniel G. and Cook, Douglas O. and Kieschnick, Robert L., On the Evolution of Corporate Capital Structures (2015). Available at SSRN: https://ssrn.com/abstract=1359313 or http://dx.doi.org/10.2139/ssrn.1359313

Daniel G. Arce

University of Texas at Dallas - Department of Economics & Finance ( email )

Richardson, TX 75083
United States

Douglas O. Cook

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States
205-348-8971 (Phone)
205-348-0590 (Fax)

Robert L. Kieschnick (Contact Author)

University of Texas at Dallas ( email )

800 W. Campbell Rd, SM31
Richardson, TX 75080
United States
972-883-6273 (Phone)

HOME PAGE: http://www.utdallas.edu/~rkiesch/

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