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What if Fi rms Adjust Their Debt-Equity Ratios Toward a Target Range?

57 Pages Posted: 2 Oct 2012 Last revised: 14 Oct 2012

Ricardo Buscariolli

Sao Paulo School of Economics-FGV

Rodrigo De-Losso

University of Sao Paulo (USP) - Department of Economics

Date Written: January 15, 2010

Abstract

We estimate optimal target-ranges of capital structure controlling for a series of fi rm-specifi c characteristics and accounting for the serial correlation that arises from the dynamic component of the leverage choice. Then, we empirically examine if firms adjust their leverages toward the estimated optimal ranges. Our analysis suggests that the observed behavior of fi rms is consistent with the notion of range adjustment.

Keywords: Capital Structure, Target, Leverage, Dynamic Ordered Probit

JEL Classification: G32

Suggested Citation

Buscariolli, Ricardo and De-Losso, Rodrigo, What if Fi rms Adjust Their Debt-Equity Ratios Toward a Target Range? (January 15, 2010). Available at SSRN: https://ssrn.com/abstract=2155170 or http://dx.doi.org/10.2139/ssrn.2155170

Ricardo Buscariolli (Contact Author)

Sao Paulo School of Economics-FGV ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

Rodrigo De-Losso

University of Sao Paulo (USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo SP, 05508-900
Brazil
551130916070 (Phone)

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