What if Firms Adjust Their Debt-Equity Ratios Toward a Target Range?
57 Pages Posted: 2 Oct 2012 Last revised: 14 Oct 2012
Date Written: January 15, 2010
We estimate optimal target-ranges of capital structure controlling for a series of firm-specific 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 firms is consistent with the notion of range adjustment.
Keywords: Capital Structure, Target, Leverage, Dynamic Ordered Probit
JEL Classification: G32
Suggested Citation: Suggested Citation