An Empirical Analysis of Capital Structure and Abnormal Returns

25 Pages Posted: 30 Nov 2006 Last revised: 24 Feb 2010

See all articles by Sheeja Sivaprasad

Sheeja Sivaprasad

University of Westminster - Westminster Business School

Yaz Gulnur Muradoglu

Queen Mary University of London; City University London - Sir John Cass Business School

Date Written: November 2009

Abstract

We study the relation between capital structure and abnormal returns. We show that a firm’s industry matters. Abnormal returns decline in firm leverage. However, abnormal returns increase as the average industry leverage in a risk class increases. Separating the average level of external financing in an industry from that in a particular firm is important. We focus on industry characteristics. We show that firms in non-regulated and competitive industries with low concentration ratios exhibit this behaviour. In contrast, in the utilities risk class, abnormal returns increase in firm leverage. MM type empirical results are unique to the utilities sector.

JEL classifications: G11, G32, L50

Keywords: Keywords: Leverage, Capital Structure, Abnormal Returns

JEL Classification: G31,G32

Suggested Citation

Sivaprasad, Sheeja and Muradoglu, Yaz Gulnur, An Empirical Analysis of Capital Structure and Abnormal Returns (November 2009). Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=948393 or http://dx.doi.org/10.2139/ssrn.948393

Sheeja Sivaprasad (Contact Author)

University of Westminster - Westminster Business School ( email )

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Yaz Gulnur Muradoglu

Queen Mary University of London ( email )

Francis Bancroft Building
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United Kingdom

City University London - Sir John Cass Business School ( email )

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