50 Pages Posted: 19 Mar 2011 Last revised: 22 Aug 2013
Date Written: August 2013
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: 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
By John Graham