Corporate Capital Structure Actions
77 Pages Posted: 9 Dec 2016 Last revised: 21 Jul 2019
Date Written: June 26, 2019
This paper is a study of the financing actions by firms to adjust leverage: debt reductions, stock sales, debt issues, and stock purchases. Each type of action is positively autocorrelated. The standard empirical models of corporate leverage produce leverage targets that do not correctly predict actual debt issues and stock sales. Firm-specific time-series regressions with the logarithm of firm assets and market-to-book as regressors, correctly predict these patterns. The estimates imply that on average firms adjust toward their target much faster than generally understood, closing about half of the leverage gap in a year.
Keywords: Corporate leverage target, Stock sales, Stock purchases, Debt issues, Debt reductions
JEL Classification: C38, G32
Suggested Citation: Suggested Citation