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Capital Structure Decisions: Which Factors are Reliably Important?

60 Pages Posted: 24 Jul 2004 Last revised: 11 Dec 2007

Murray Z. Frank

University of Minnesota

Vidhan K. Goyal

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: October 10, 2007

Abstract

This paper examines the relative importance of many factors in the leverage decisions of publicly traded American firms from 1950 to 2003. The most reliable factors are median industry leverage (+ effect on leverage), market-to-book ratio (-), tangibility (+), profits (-), log of assets (+), and expected inflation (+). Industry subsumes a number of smaller effects. The empirical evidence seems reasonably consistent with some versions of the tradeoff theory of capital structure.

Keywords: Capital structure, pecking order, trade-off theory, market timing, multiple imputation

JEL Classification: G32

Suggested Citation

Frank, Murray Z. and Goyal, Vidhan K., Capital Structure Decisions: Which Factors are Reliably Important? (October 10, 2007). Available at SSRN: https://ssrn.com/abstract=567650 or http://dx.doi.org/10.2139/ssrn.567650

Murray Z. Frank

University of Minnesota ( email )

Carlson School of Management
321 19th Avenue South
Minneapolis, MN 55455
United States
612-625-5678 (Phone)

Vidhan K. Goyal (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong
852-2358-7678 (Phone)
852-2358-1749 (Fax)

HOME PAGE: http://www.vidhangoyal.com

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