Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure

63 Pages Posted: 9 Feb 2006  

Michael L. Lemmon

University of Utah - Department of Finance

Michael R. Roberts

The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER)

Jaime F. Zender

University of Colorado at Boulder - Department of Finance

Date Written: December 31, 2006

Abstract

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

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

Michael L. Lemmon

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-5210 (Phone)
801-581-7214 (Fax)

Michael R. Roberts (Contact Author)

The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER) ( email )

3620 Locust Walk, #2320
Philadelphia, PA 19104-6365
United States
(215) 573-9780 (Phone)

HOME PAGE: http://finance.wharton.upenn.edu/~mrrobert/

Jaime F. Zender

University of Colorado at Boulder - Department of Finance ( email )

Boulder, CO 80309
United States
303-554-1665 (Phone)
303-492-4689 (Fax)

HOME PAGE: http://www-bus.colorado.edu/faculty/Zender/

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