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SIMULTANEOUS DEBT AND EQUITY ISSUES AND CAPITAL STRUCTURE TARGETS
Author(s) -
Billingsley Randall S.,
Smith David M.,
Lamy Robert E.
Publication year - 1994
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1994.tb00161.x
Subject(s) - capital structure , debt , equity (law) , shareholder , cost of capital , business , position (finance) , equity capital markets , gearing ratio , monetary economics , finance , economics , financial economics , financial system , internal debt , private equity , debt levels and flows , microeconomics , corporate governance , profit (economics) , political science , law
Numerous empirical studies find evidence that managers behave as if they pursue target debt ratios. A possible alternative to the use of conventional, separate issuances of debt and equity to effect desired adjustments toward a target ratio is the simultaneous issuance of such securities. We extend prior research on such issues by exploring their use in the pursuit of capital structure targets. We find that the issuance of securities in general and the use of simultaneous issues of debt and equity in particular are at least partially influenced by where a firm's capital structure is relative to the average position in its industry. Further, shareholders' reactions to the announced plan to issue and to the issuance of securities are influenced, in part, by whether the issue moves the firm toward or away from the average capital structure in the industry. We also find evidence that the infrequent use of simultaneous issues relative to unaccompanied debt and equity issues is explained by their comparative flotation costs.