|Elsas, Ralf; Florysiak, David (July 2008): Empirical Capital Structure Research: New Ideas, Recent Evidence, and Methodological Issues. Discussion Papers in Business Administration 2008-10|
Even 50 years after Modigliani/Miller’s irrelevance theorem, the basic question of how firms choose their capital structure remains unclear. This survey paper aims at summarizing and discussing corresponding recent developments in empirical capital structure research, which, in our view, are promising for future research. We first present some “stylized facts” on capital structure issues. The focus of the discussion is set on studies taking on the key idea to differentiate between competing theories by testing for firm adjustment behavior following shocks to their capital structure. In addition, we discuss empirical studies examining additional factors that may influence capital structure decisions, but have gained only recently attention in the literature (like corporate ratings or irrational managers). Since some of the available contradictory evidence on capital structure issues might be explained by econometric challenges due to the typical data structure, we also discuss methodological issues like panel data, endogeneity, and partial adjustment models in the capital structure context. Finally, we illustrate the methodological and empirical aspects discussed in this survey by providing corresponding evidence for exchange-listed German companies in the period 1987-2006.
|Item Type:||Paper (Discussion Paper)|
|Keywords:||Corporate finance, capital structure determinants, dynamic adjustment models|
|Faculties:||Munich School of Management|
Munich School of Management > Discussion Papers
Munich School of Management > Discussion Papers > Finance & Banking
|Subjects:||300 Social sciences > 300 Social sciences, sociology and anthropology|
300 Social sciences > 330 Economics
|Deposited On:||07. Aug 2008 09:42|
|Last Modified:||29. Apr 2016 08:57|
Alti, A., (2006): How persistent is the impact of market timing on capital structure? Journal of Finance, 61, 1681-1710.
Arellano, M., Bond, S. (1991): Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58(2), 277-297.
Arellano, M., Bover, O. (1995): Another look at the instrumental variable estimation of errorcomponents models. Journal of Econometrics, 68(1), 29-51.
Baker, M., Wurgler, J. (2002): Market timing and capital structure. Journal of Finance, 57(1), 1-32.
Baker, M., Ruback, R.S., Wurgler, J. (2007): Behavioral corporate finance: A survey. In: Eckbo, E. (2007): Handbook of corporate finance: Empirical corporate finance, Volume 1, Handbooks in finance series, Chapter 4, Elsevier, 2007, 146-178.
Barberis, N., Thaler, R. (2003): A survey of behavioral finance. In: Constantinides, G.M., Harris, M., Stulz, R. M. (2003): Handbook of the economics of finance, Volume 1, Chapter 18, Elsevier, 2003, 1053-1128.
Barclay, M.J., Smith, C.W. Jr., Morellec, E. (2006): On the dept capacity of growth options. Journal of Business, 79(1), 37-59.
Ben-David, I., Graham, J.R., Harvey, C.R. (2007): Managerial overconfidence and corporate policies. Working paper, Duke University. Berk, J., DeMarzo, P. (2007): Corporate Finance. Pearson, 2007.
Blundell, R., Bond, S.R. (1998): Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143.
Boot, A., Milbourn, T.T., Schmeits, A. (2006): Credit ratings as coordination mechanisms. Review of Financial Studies, 19(1), 81-118.
Brounen, D., de Jong, A., Koedijk, K. (2006): Capital structure policies in Europe: Survey evidence. Journal of Banking and Finance, 30(5), 1409-1442.
Campello, M. (2003): Capital structure and product markets interactions: Evidence from business cycles. Journal of Financial Economics, 68(3), 353-378.
Elsas, R., Florysiak, D. (2008): Dynamic capital structure and exogenous stock returns: An econometric analysis. Working paper, Ludwig-Maximilians-University Munich.
Elsas, R., Flannery, M.J., Garfinkel, J.A. (2007): Major investments, firm financing decisions, and long-run performance. Working paper, Ludwig-Maximilians-University Munich, University of Florida, and University of Iowa.
Fama, E.F., French, K.R. (2002): Testing trade-off and pecking order predictions about dividends and debt. Review of Financial Studies, 15(1), 1-33.
Fama, E.F., MacBeth, J.D. (1973): Risk, return, and equilibrium: Empirical tests. Journal of Political Economy, 81(3), 607-636.
Flannery, M.J., Rangan, K.P. (2006): Partial adjustment toward target capital structures. Journal of Financial Economics, 79(3), 469-506.
Frank, M.Z., Goyal, V.K. (2008): Trade off and pecking order theories of debt. In: Eckbo, E. (2008): Handbook of corporate finance: Empirical corporate finance, Volume 2, Handbooks in finance series, Chapter 12, Elsevier, forthcoming.
Frank, M.Z., Goyal, V.K. (2007): Capital structure decisions: Which factors are reliably important? Working paper, University of Minnesota and Hong Kong University of Science and Technology.
Frank, M.Z., Goyal, V.K. (2003): Testing the pecking-order theory of capital structure. Journal of Financial Economics, 67(2), 217-248.
Graham, J.R. (2003): Taxes and corporate finance: A review. Review of Financial Studies, 16(4), 1075-1129.
Graham, J.R. (2000): How big are the tax benefits of debt? Journal of Finance, 55(5), 1901- 1941.
Graham, J.R., Harvey, C.R. (2001): The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243.
Greene, W.H. (2003): Economic analysis. Fifth edition, Prentice Hall, 2007.
Hackbarth, D., Miao, J. Morellec, E. (2006): Capital structure, credit risk, and macroeconomic conditions. Journal of Financial Economics, 82(3), 519-550.
Hahn, J., Hausman, J., Kuersteiner, G. (2007): Long difference instrumental variables estimation for dynamic panel models with fixed effects. Journal of Econometrics, 140(2), 574-617.
Hall, B.J., Liebman, J.B. (1998): Are CEOs really paid like bureaucrats? Quarterly Journal of Economics, 113(3), 653-691.
Harris, M., Raviv, A. (1991): The theory of capital structure. Journal of Finance, 46(1), 297- 355.
Hirsch, C., Krahnen, J.P. (2007): A primer on rating agencies as monitors: An analysis of the watchlist period. Working paper, Goethe-University Frankfurt.
Hovakimian, A. (2004): The role of target leverage in security issues and repurchases. Journal of Business, 77(4).
Hovakimian, A., Hovakimian, G., Tehranian, H. (2004): Determinants of target capital structure: The case of combined debt and equity financing. Journal of Financial Economics, 71(3), 517-540.
Hovakimian, A., Opler, T., Titman, S. (2001): The debt-equity choice. Journal of Financial and Quantitative Analysis, 36(1), 1-24.
Huang, R., Ritter, J.R. (2007): Testing theories of capital structure and estimating the speed of adjustment. Working paper, Kennesaw State University and University of Florida.
Jensen, M.C. (1986): Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323-329.
Jensen, M.C., Meckling, W.H. (1976): Theory of the firm: Managerial behavior, agency costs and capital structure. Journal of Financial Economics, 3(4), 305-360.
Kayhan, A., Titman, S. (2007): Firms’ histories and their capital structures. Journal of Financial Economics, 83(1), 1-32.
Kisgen, D.J. (2006): Credit ratings and capital structure. Journal of Finance, 61(3), 1035- 1073.
Korajczyk, R.A., Levy, A. (2003): Capital structure choice: Macroeconomic conditions and financial constraints. Journal of Financial Economics, 68(1), 75-109.
Kraus, A., Litzenberger, R. (1973): A state-preference model of optimal financial leverage. Journal of Finance, 28(4), 911-922.
Leary, M.T., Roberts, M. (2005): Do firms rebalance their capital structures? Journal of Finance, 60, 2575-2619.
Lemmon, M.L., Roberts, M.R., Zender, J.F. (2006): Back to the beginning: Persistence and the cross-section of corporate capital structure, Working paper, University of Utah, University of Pennsylvania, and University of Colorado at Boulder.
MacKay, P., Phillips, G.M. (2005): How does industry affect firm financial structure? Review of Financial Studies, 18(4), 1433-1466.
Malmendier, U., Tate, G. (2005): CEO overconfidence and corporate investment. Journal of Finance, 60(6), 2661-2700.
Malmendier, U., Tate, G., Yan, J. (2007): Corporate financial policies with overconfident managers. Working paper, UC Berkeley, NBER, UCLA, Stanford.
Mayer, C. Sussman, O. (2005): A new test of capital structure. Working paper, Saïd Business School, University of Oxford.
Modigliani, F., Miller, M.H. (1958): The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261-297.
Myers, S.C. (2003): Financing of corporations. In: Constantinides, G.M., Harris, M., Stulz, R. M. (2003): Handbook of the economics of finance, Elsevier, 2003.
Myers, S.C. (2001): Capital Structure. Journal of Economic Perspectives, 15(2), 81-102.
Myers, S.C. (1984): The capital structure puzzle. Journal of Finance, 39(3), 575-592.
Myers, C., Majluf, N.S. (1984): Corporate financing and investment decisions when firms have information that investors do not. Journal of Financial Economics, 13(2), 187-221.
Nelson, C.R., Startz, R. (1990): Some further results on the exact small sample properties of the instrumental variable estimator. Econometrica, 58 (4), 967-976.
Neus, W., Walter, A. (2008): Lines of research in fifty years of corporate financial theory. Zeitschrift für Betriebswirtschaft, 78, Special Issue 6: “50 years after MM: Recent developments in corporate finance”, forthcoming.
Petersen, M.A. (2007): Estimating standard errors in finance panel data sets: Comparing approaches. Working paper, Northwestern University and NBER.
Rajan, R.G., Zingales, L. (1995): What do we know about capital structure? Some evidence from international data. Journal of Finance, 50(5), 1421-1460.
Ritter, J.R. (1991): The long-run performance of initial public offerings. Journal of Finance, 46(1), 3-27.
Roll, R. (1986): The hubris hypothesis of corporate takeovers. Journal of Business, 59(2), 197-216.
Shanken, J., Zhou, G. (2007): Estimating and testing beta pricing models: Alternative methods and their performance in simulations. Journal of Financial Economics, 84(1), 40-86.
Shyam-Sunder, L., Myers, S.C. (1999): Testing static trade-off against pecking order models of capital structure. Journal of Financial Economics, 51(2), 219-244.
Titman, S., Tsyplakov, S. (2007): A dynamic model of optimal capital structure. Review of Finance, 11(3), 401-451.
Titman, S., Wessels, R. (1988): The determinants of capital structure choice. Journal of Finance, 43, 1-12.
Welch, I. (2007): Common flaws in empirical capital structure research. Working paper, Brown University.
Welch, I. (2004): Capital structure and stock returns. Journal of Political Economy, 112(1), 106-131.
Wooldridge, J.M. (2002): Economic analysis of cross section and panel data. MIT Press, 2002.
Yermack, D. (1995): Do corporations award CEO stock options effectively? Journal of Financial Economics, 39(2-3), 237-269.
Zingales, L. (1998): Survival of the fittest or the fattest? Exit and financing in the trucking industry. Journal of Finance, 53(3), 905-938.