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An Empirical Test of Ross's Cash Flow Beta Theory of Capital Structure
Author(s) -
Sugrue Timothy F.,
Scherr Fredrick C.
Publication year - 1989
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1989.tb00347.x
Subject(s) - cash flow , leverage (statistics) , cash flow forecasting , econometrics , economics , empirical research , beta (programming language) , capital structure , free cash flow , financial economics , mathematics , finance , computer science , statistics , debt , programming language
This paper empirically investigates Ross's cash flow beta theory of capital structure. Ross hypothesizes that, for firms of similar cash flow variance, there will be an inverse relationship between financial leverage and cash flow beta. This paper provides empirical support for Ross's theory, though the extent of the support depends upon the sample period and the leverage specification.