Dynamic Corporate Capital Structure Behavior: Empirical Assessment in the Light of Heterogeneity and Non Stationarity

Quaderni - Working Paper DSE N° 988

53 Pages Posted: 19 Jan 2015

See all articles by Maria Elena Bontempi

Maria Elena Bontempi

University of Bologna - Department of Economics

Laura Bottazzi

University of Bologna - Department of Economics; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; University of Bologna - Rimini Center for Economic Analysis (RCEA)

Roberto Golinelli

University of Bologna - Department of Economics

Date Written: January 14, 2015

Abstract

Understanding the dynamics of the leverage ratio is at the heart of the empirical research about firms' capital structure, as they can be very different under alternative theoretical models. The pillars of almost all empirical applications are the maintained assumptions of poolability and stationarity, which are motivated by the need of model’s simplicity and treatability, rather than being based on an empirical ground. In this paper we provide robust evidence of non-stationarity for a significantly large share of US firms' debt ratios and of strong heterogeneity in the speeds at which firms adjust towards their targets. These results stimulate new directions of the empirical research on debt ratio dynamics by relying more on the concept of heterogeneous degree of leverage persistence.

Keywords: Corporate finance, Heterogeneity of agents, Target leverage, Speed of adjustment, Unit roots and cointegration

JEL Classification: G32, C12, C22, C23, C51

Suggested Citation

Bontempi, Maria Elena and Bottazzi, Laura and Golinelli, Roberto, Dynamic Corporate Capital Structure Behavior: Empirical Assessment in the Light of Heterogeneity and Non Stationarity (January 14, 2015). Quaderni - Working Paper DSE N° 988, Available at SSRN: https://ssrn.com/abstract=2551720 or http://dx.doi.org/10.2139/ssrn.2551720

Maria Elena Bontempi (Contact Author)

University of Bologna - Department of Economics ( email )

Strada Maggiore, 45
40125 Bologna, 40125
Italy
+39 051 2092600 (Phone)
+39 051 2092664 (Fax)

Laura Bottazzi

University of Bologna - Department of Economics

Strada Maggiore 45
Bologna, 40125
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy
+39 02 5836 3326 (Phone)
+39 02 5836 3302 (Fax)

HOME PAGE: http://www.igier.uni-bocconi.it/bottazzi

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

Roberto Golinelli

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39 051 209 2638 (Phone)
+39 051 209 2664 (Fax)

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