A Review of Empirical Capital Structure Research and Directions for the Future
59 Pages Posted: 22 Dec 2010 Last revised: 24 Oct 2011
There are 2 versions of this paper
A Review of Empirical Capital Structure Research and Directions for the Future
A Review of Empirical Capital Structure Research and Directions for the Future
Date Written: April 7, 2011
Abstract
This paper reviews empirical capital structure research, concentrating on papers published since 2005. We begin by documenting three dimensions of capital structure variation: cross-firm, cross-industry, and within-firm through time. We summarize how well the traditional trade-off and pecking order approaches explain these sources of variation and highlight their empirical shortcomings. We review recent research that attempts to address these shortcomings, much of which follows the following broad themes: i) Important variables have been mis-measured in empirical tests, ii) The impact of leverage on non-financial stakeholders is important, iii) The supply side of capital affects corporate capital structure, iv) Richer features of financial contracts have been under-researched, v) Value effects due to capital structure appear to be modest over wide ranges of leverage, vi) Estimates of leverage adjustment speeds are biased, vii) Capital structure dynamics have not been adequately considered. Much progress has been made addressing these issues, some of which has led to the study of an expanded range of capital structure topics, including debt maturity, loan and covenant characteristics, collateral effects, and alternative financing sources such as leasing and credit lines. We conclude by summarizing unanswered questions and areas for future research.
Keywords: capital structure, leverage, debt ratio, tradeoff theory, financial contracting, target leverage, speed of adjustment, partial adjustment model
JEL Classification: G32
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
What Do We Know About Capital Structure? Some Evidence from International Data
By Raghuram G. Rajan and Luigi Zingales
-
The Theory and Practice of Corporate Finance: Evidence from the Field
By John R. Graham and Campbell R. Harvey
-
The Theory and Practice of Corporate Finance: The Data
By John R. Graham and Campbell R. Harvey
-
Market Timing and Capital Structure
By Malcolm P. Baker and Jeffrey Wurgler
-
Market Timing and Capital Structure
By Malcolm P. Baker and Jeffrey Wurgler
-
Testing Tradeoff and Pecking Order Predictions About Dividends and Debt
By Eugene F. Fama and Kenneth R. French
-
Testing Static Trade-Off Against Pecking Order Models of Capital Structure
-
Optimal Capital Structure Under Corporate and Personal Taxation
By Harry Deangelo and Ronald W. Masulis