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Capital Structure Decisions: Which Factors Are Reliably Important?
Author(s) -
Frank Murray Z.,
Goyal Vidhan K.
Publication year - 2009
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2009.01026.x
Subject(s) - leverage (statistics) , capital structure , dividend , monetary economics , economics , financial economics , business , econometrics , finance , debt , machine learning , computer science
This paper examines the relative importance of many factors in the capital structure decisions of publicly traded American firms from 1950 to 2003. The most reliable factors for explaining market leverage are: median industry leverage (+ effect on leverage), market‐to‐book assets ratio (−), tangibility (+), profits (−), log of assets (+), and expected inflation (+). In addition, we find that dividend‐paying firms tend to have lower leverage. When considering book leverage, somewhat similar effects are found. However, for book leverage, the impact of firm size, the market‐to‐book ratio, and the effect of inflation are not reliable. The empirical evidence seems reasonably consistent with some versions of the trade‐off theory of capital structure.