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Capital Structure and Stock Returns

Ivo Welch

UCLA; National Bureau of Economic Research (NBER)

June 16, 2003

Yale ICF Working Paper No. 02-03; EFMA 2002 London Meetings

U.S. corporations do not use their debt and equity issuing and repurchasing activities to counteract the mechanistic effects of stock returns on their debt equity ratios. Thus, over 1-5 year horizons, stock returns can explain about 40% of debt ratio dynamics. Although corporate (net) issuing activity is lively, and although it can explain the remaining 60% of debt ratio dynamics (long-term debt issuing activity being most capital structure relevant), corporate issuing motives remain largely a mystery. When stock returns are accounted for, taxes, bankruptcy costs, and many other proxies used in the literature, play at best a very modest role in explaining capital structure.

Number of Pages in PDF File: 35

JEL Classification: G24

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Date posted: January 25, 2002  

Suggested Citation

Welch, Ivo, Capital Structure and Stock Returns (June 16, 2003). Yale ICF Working Paper No. 02-03; EFMA 2002 London Meetings. Available at SSRN: https://ssrn.com/abstract=298196 or http://dx.doi.org/10.2139/ssrn.298196

Contact Information

Ivo Welch (Contact Author)
UCLA ( email )
110 westwood plaza
Los Angeles, CA CA 90095-1481
United States
310-825-2508 (Phone)
HOME PAGE: http://www.ivo-welch.info
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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