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A note on corporate strategy and capital structure
Author(s) -
Taylor Peter,
Lowe Julian
Publication year - 1995
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.4250160507
Subject(s) - capital structure , equity (law) , profit (economics) , economics , debt , cost of capital , capital (architecture) , business , industrial organization , microeconomics , finance , archaeology , political science , law , history
The relationships between capital structure and corporate strategy in previous U.S. and Australian empirical studies, which use different definitions of capital structure, and hence have different functional relationships, are considered. A model using the U.S. specification with the Australian data is estimated, for which previous conclusions relating to profit are confirmed. The relationship between strategy and capital structure is thus shown to be less than robust. The conclusion that debt/equity ratios of highly diversified firms are more strongly affected by firm‐level variables is supported. An explanation that the capital market rewards focused firms because they are easier to understand and price is offered.