Original title: Asymmetries in the firm’s use of debt to changing market values
Authors: Ferris, S. P. ; Hanousek, Jan ; Shamshur, Anastasiya ; Trešl, Jiří
Document type: Research reports
Year: 2017
Language: eng
Series: CERGE-EI Working Paper Series, volume: 598
Abstract: Using a large sample of U.S. firms over the period, 1984 to 2013, this study examines the relation between market and book leverage ratios. Unlike Welch (2004) who contends that changes in market leverage do not induce adjustments in book leverage, we find an asymmetric effect. That is, firms adjust their book leverage relative to market leverage only when the changes in market leverage are due to increases in the value of the firm’s equity. No adjustment is observed when firm equity values decrease. We observe a number of interesting differences between those firms that make large and small capital structure adjustments in response to changing equity prices. Our results are consistent with Barclay, Morellec and Smith (2006) who argue that the optimal level of debt decreases in the presence of corporate growth options.
Keywords: book leverage; capital structure; market leverage
Project no.: GA14-31783S (CEP)
Funding provider: GA ČR

Institution: Economics Institute AS ČR (web)
Document availability information: Fulltext is available at external website.
External URL: http://www.cerge-ei.cz/pdf/wp/Wp598.pdf
Original record: http://hdl.handle.net/11104/0272903

Permalink: http://www.nusl.cz/ntk/nusl-358341


The record appears in these collections:
Research > Institutes ASCR > Economics Institute
Reports > Research reports