63 Pages Posted: 9 Feb 2006
Date Written: December 31, 2006
We examine the evolution of corporate capital structures and find that little of the variation in leverage is captured by previously identified determinants, such as size, market-to-book, profitability, industry, etc. Instead, the majority of variation in leverage ratios is driven by an unobserved time-invariant effect that generates surprisingly stable capital structures: High (low) levered firms tend to remain as such for over two decades. Additionally, this feature of leverage is robust to firm exit, is present prior to the IPO, and is largely unaffected by the process of going public, suggesting that variation in capital structures is primarily explained by factors that remain relatively stable for long periods of time.
Keywords: Capital Structure, Financing Decisions, Tradeoff, Pecking Order
JEL Classification: G32, G31, G35, C23
Suggested Citation: Suggested Citation
Lemmon, Michael L. and Roberts, Michael R. and Zender, Jaime F., Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure (December 31, 2006). Available at SSRN: https://ssrn.com/abstract=881899 or http://dx.doi.org/10.2139/ssrn.881899
By John Graham