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AN EMPIRICAL MODEL OF CAPITAL STRUCTURE: SOME NEW EVIDENCE
Author(s) -
Homaifar GhasseM,
Zietz Joachim,
Benkato Omar
Publication year - 1994
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1994.tb00302.x
Subject(s) - capital structure , leverage (statistics) , economics , econometrics , distributed lag , empirical evidence , corporate finance , monetary economics , short run , corporate tax , stock (firearms) , financial economics , macroeconomics , finance , mathematics , statistics , value added tax , tax avoidance , mechanical engineering , debt , philosophy , epistemology , engineering
Using a general autoregressive distributed lag model, we estimate the longrun steady state determinants of corporate capital structure. We find that, in the long run, the leverage ratio is related positively to the corporate tax rate and firm size and negatively to future growth opportunities and stock returns. By contrast, there appears to be no relation between leverage and the corporate tax rate on a short‐run year to year basis. Our results suggest that prior empirical evidence on capital structure is of questionable value precisely because of its failure to clearly separate the short‐run relationship between leverage and its determinants from its long‐run relationship.