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The Impact of Capital Structure Change on Firm Value: Some Estimates
Author(s) -
MASULIS RONALD W.
Publication year - 1983
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1983.tb03629.x
Subject(s) - capital structure , leverage (statistics) , economics , issuer , debt , monetary economics , econometrics , stock exchange , financial economics , stock (firearms) , finance , mathematics , statistics , mechanical engineering , engineering
This study develops a model based on current corporate finance theories which explains stock returns associated with the announcement of issuer exchange offers. The major independent variables are changes in leverage multiplied by senior security claims outstanding and changes in debt tax shields. Parameter estimates are statistically significant and consistent in sign and relative magnitude with model predictions. Overall, 55 percent of the variance in stock announcement period returns is explained. The evidence is consistent with tax‐based theories of optimal capital structure, a positive debt level information effect, and leverage‐induced wealth transfers across security classes.