The Role of Target Leverage in Security Issues and Repurchases

47 Pages Posted: 20 Mar 2001

See all articles by Armen Hovakimian

Armen Hovakimian

Baruch College - Zicklin School of Business

Date Written: January 2001


The paper examines whether security issues and repurchases adjust the capital structure toward the target. The time-series patterns of debt ratios imply that only debt reductions are initiated to offset the accumulated deviation from target leverage. Debt issues, equity issues, and equity repurchases do not offset the deviation from the target. The importance of target leverage in earlier debt-equity choice studies is driven by the sub-sample of equity issues that are accompanied by debt reductions. The timing of equity transactions is driven by market conditions. Firms issuing or repurchasing equity can pursue market-timing strategies because their target debt ratios are low and because equity transactions induce only small deviations from these targets.

Keywords: leverage, target leverage, capital structure, equity issues, equity repurchases, debt issues, debt reductions

JEL Classification: G32

Suggested Citation

Hovakimian, Armen, The Role of Target Leverage in Security Issues and Repurchases (January 2001). Available at SSRN: or

Armen Hovakimian (Contact Author)

Baruch College - Zicklin School of Business ( email )

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Box B10-225
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