Abstract

http://ssrn.com/abstract=79476
 
 

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The Debt-Equity Choice


Tim C. Opler


Credit Suisse First Boston

Sheridan Titman


University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)


Dice Center for Research in Financial Economics

Abstract:     
This paper compares U.S. firms that issued or repurchased significant amounts of equity between 1978 and 1993 to those that issued or repurchased debt. We find that firms are most likely to increase debt and repurchase equity when they have less debt than is predicted by a cross-sectional leverage regression. In addition, the likelihood of issuing debt rises with the firms' past profitability. Our results confirm previous findings that firms are most likely to issue equity after experiencing a share price increase. In contrast to our other findings, this last result appears to be inconsistent with the hypothesis that firms make choices that move them towards a target debt ratio. The paper concludes by exploring a variety of explanations for the positive relation between share price runups and equity issuance.

JEL Classification: G31, G32

working papers series


Not Available For Download

Date posted: April 24, 1998  

Suggested Citation

Opler, Tim C. and Titman, Sheridan, The Debt-Equity Choice. Dice Center for Research in Financial Economics. Available at SSRN: http://ssrn.com/abstract=79476

Contact Information

Tim C. Opler
Credit Suisse First Boston ( email )
11 Madison Avenue
Investment Banking Div., 23rd Flr
New York, NY 10010
United States
(212) 328-5313 (Phone)
(212) 448-3410 (Fax)
Sheridan Titman
University of Texas at Austin - Department of Finance ( email )
Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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