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How Stable Are Corporate Capital Structures?
Author(s) -
DeANGELO HARRY,
ROLL RICHARD
Publication year - 2015
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/jofi.12163
Subject(s) - leverage (statistics) , capital structure , boom , debt to capital ratio , debt , monetary economics , operating leverage , business , economics , finance , engineering , mathematics , statistics , return on equity , equity ratio , environmental engineering , profitability index , stock exchange
Leverage cross‐sections more than a few years apart differ markedly, with similarities evaporating as the time between them lengthens. Many firms have high and low leverage at different times, but few keep debt‐to‐assets ratios consistently above 0.500. Capital structure stability is the exception, not the rule, occurs primarily at low leverage, and is virtually always temporary, with many firms abandoning low leverage during the post‐war boom. Industry‐median leverage varies widely over time. Target‐leverage models that place little or no weight on maintaining a particular ratio do a good job replicating the substantial instability of the actual leverage cross‐section.