Download this Paper Open PDF in Browser

How Stable are Corporate Capital Structures?

50 Pages Posted: 19 Mar 2011 Last revised: 22 Aug 2013

Harry DeAngelo

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Richard Roll

California Institute of Technology

Date Written: August 2013

Abstract

Leverage cross sections more than a few years apart differ markedly, with similarities evaporating as the time between cross sections lengthens. Many firms have high and low leverage at different times, but few keep debt-to-assets ratios consistently above 0.500. Capital-structure stability is the exception, not the rule, occurs primarily at low leverage, and is virtually always temporary, with many firms abandoning low leverage during the post-war boom. Industry-median leverage varies widely over time. Target-leverage models that place little or no weight on maintaining a particular leverage ratio do a good job replicating the substantial instability of the actual leverage cross-section.

Keywords: capital structure stability, leverage target, leverage persistence

JEL Classification: G32, G31, G35, G33

Suggested Citation

DeAngelo, Harry and Roll, Richard, How Stable are Corporate Capital Structures? (August 2013). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1784204 or http://dx.doi.org/10.2139/ssrn.1784204

Harry DeAngelo (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6541 (Phone)
213-740-6650 (Fax)

Richard W. Roll

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)

Paper statistics

Downloads
2,097
Rank
5,207
Abstract Views
9,509