Capital Structure: Theory and Evidence

13 Pages Posted: 29 May 2015

See all articles by Nalinaksha Bhattacharyya

Nalinaksha Bhattacharyya

University of Alaska Anchorage

Cameron K.J. Morrill

University of Manitoba - Department of Accounting and Finance

Date Written: May 27, 2015

Abstract

In this paper, we develop and test empirically a model of capital structure. We show analytically that the square of 1 minus the debt ratio (total debt divided by total assets) is positively associated with the inverse of total assets and negatively associated with the log of total assets divided by the square of total assets. Empirical results using U.S. company data from Compustat are consistent with the predictions of our model, even after controlling for other potential confounding variables.

Keywords: Capital Structure

JEL Classification: C21, C23, G32

Suggested Citation

Bhattacharyya, Nalinaksha and Morrill, Cameron K.J., Capital Structure: Theory and Evidence (May 27, 2015). Available at SSRN: https://ssrn.com/abstract=2611371 or http://dx.doi.org/10.2139/ssrn.2611371

Nalinaksha Bhattacharyya (Contact Author)

University of Alaska Anchorage ( email )

3211 Providence Drive
Anchorage, AK 99508
United States
(907)786 1949 (Phone)
(907) 786 4115 (Fax)

Cameron K.J. Morrill

University of Manitoba - Department of Accounting and Finance ( email )

Faculty of Management
Winnipeg, MB R3T 5V4
Canada
204-474-8435 (Phone)
204-474-7545 (Fax)

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