Empirical Capital Structure Research: New Ideas, Recent Evidence, and Methodological Issues

Zeitschrift für Betriebswirtschaft (Journal of Business Economics), No. 6, pp. 39-71, 2008

Munich School of Management Discussion Paper No. 2008-10

48 Pages Posted: 6 Jul 2010

See all articles by Ralf Elsas

Ralf Elsas

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

David Florysiak

University of Southern Denmark; Danish Finance Institute

Date Written: July 30, 2008

Abstract

Even 50 years after Modigliani/Miller’s irrelevance theorem, the basic question of how firms choose their capital structure remains unclear. This survey paper aims at summarizing and discussing corresponding recent developments in empirical capital structure research, which, in our view, are promising for future research.

We first present some “stylized facts” on capital structure issues. The focus of the discussion is set on studies taking on the key idea to differentiate between competing theories by testing for firm adjustment behavior following shocks to their capital structure. In addition, we discuss empirical studies examining additional factors that may influence capital structure decisions, but have gained only recently attention in the literature (like corporate ratings or irrational managers).

Since some of the available contradictory evidence on capital structure issues might be explained by econometric challenges due to the typical data structure, we also discuss methodological issues like panel data, endogeneity, and partial adjustment models in the capital structure context.

Finally, we illustrate the methodological and empirical aspects discussed in this survey by providing corresponding evidence for exchange-listed German companies in the period 1987-2006.

Keywords: Corporate finance, capital structure determinants, dynamic adjustment models

JEL Classification: G32

Suggested Citation

Elsas, Ralf and Florysiak, David, Empirical Capital Structure Research: New Ideas, Recent Evidence, and Methodological Issues (July 30, 2008). Munich School of Management Discussion Paper No. 2008-10. Available at SSRN: https://ssrn.com/abstract=1634932

Ralf Elsas

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

David Florysiak (Contact Author)

University of Southern Denmark ( email )

Campusvej 55
Odense, 5230
Denmark

Danish Finance Institute ( email )

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