Empirical Capital Structure: A Review

Foundations and Trends in Finance, Vol. 3, No. 1, pp. 1–93, 2008

93 Pages Posted: 19 Aug 2012

See all articles by Christopher A. Parsons

Christopher A. Parsons

Foster School of Business, University of Washington

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: 2008

Abstract

This survey provides a synthesis of the empirical capital structure literature. Our synthesis is divided into three parts. The first part examines the evidence that relates to the cross-sectional determinants of capital structure. This literature identifies and discusses the characteristics of firms that tend to be associated with different debt ratios. In the second part, we review the literature that examines changes in capital structure. The papers in this literature explore factors that move firms away from their target capital structures as well as the extent to which future financing choices move firms back toward their targets. Finally, we complete our review with a set of studies that explore the consequences of leverage, rather than its determinants. These studies are concerned with feedback from financing to real decisions. For example, we explore how a firm's financing choices influences its incentive to invest in its workers, price its products, form relationships with suppliers, or compete aggressively with competitors.

Keywords: capital structure, empirical capital structure, trade off theory, pecking order, adjustment costs, review of capital structure research

Suggested Citation

Parsons, Christopher A. and Titman, Sheridan, Empirical Capital Structure: A Review (2008). Foundations and Trends in Finance, Vol. 3, No. 1, pp. 1–93, 2008. Available at SSRN: https://ssrn.com/abstract=2131759

Christopher A. Parsons (Contact Author)

Foster School of Business, University of Washington ( email )

PACCAR HALL
4273 E Stevens Way NE
Seattle, WA 98195
United States

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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