The Joint Determination of Leverage and Maturity

Simon Graduate School Working Paper No. FR 01-20

29 Pages Posted: 12 Nov 2001

See all articles by Michael J. Barclay

Michael J. Barclay

University of Rochester - Simon School (Deceased)

Leslie M. Marx

Duke University - Fuqua School of Business, Economics Group

Clifford W. Smith

Simon Graduate School of Business, University of Rochester

Date Written: October 2001

Abstract

We examine theories of leverage and debt maturity, focusing on the impact of a firm's investment opportunity set and regulatory environment in determining these policies. Using results on strategic complementarities, we identify sufficient conditions for the theory to have testable implications for reduced-form and structural-equation regression coefficients. Obtaining testable implications for structural-equation regression coefficients requires less from the theory but more from the data than the reduced-form specification since it requires an instrumental-variables approach. Thus, we highlight tradeoffs between theory and statistical methods. We provide tests using two decades of data for over 5,000 industrial firms.

Suggested Citation

Barclay, Michael J. and Marx, Leslie M. and Smith, Clifford W., The Joint Determination of Leverage and Maturity (October 2001). Simon Graduate School Working Paper No. FR 01-20. Available at SSRN: https://ssrn.com/abstract=290324 or http://dx.doi.org/10.2139/ssrn.290324

Michael J. Barclay

University of Rochester - Simon School (Deceased)

N/A

Leslie M. Marx

Duke University - Fuqua School of Business, Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States

Clifford W. Smith (Contact Author)

Simon Graduate School of Business, University of Rochester ( email )

Carol Simon Hall 3-202C
Rochester, NY 14627
United States
585-275-3217 (Phone)
585-442-6323 (Fax)

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