Capital structure: The case of firms issuing debt

Yushu Zhu*

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    17 Citations (Scopus)

    Abstract

    This study reinvestigates the relationship between financial leverage and firm characteristics in a cross-sectional setting and a panel setting. Monte-Carlo simulation-based inference results confirm the finding of Barraclough (2007) that a cross-sectional multiple regression model sharing common divisors suffers from a latent spurious ratio problem. To avoid the spurious ratio problem, variables in changes instead of ratios are adopted in two panel models: a first-differenced fixed-effects panel model and a dynamic Generalized Method of Moments panel model. The two models respectively integrate fixed effects (e.g. the persistence nature of financial leverage) and endogeneity features of financial leverage decisions. Model results suggest past realization of debt explains most of the current debt level after controlling for endogeneity. We find no significant association between debt and firm characteristics.JEL Classification: G32, H20

    Original languageEnglish
    Pages (from-to)283-295
    Number of pages13
    JournalAustralian Journal of Management
    Volume37
    Issue number2
    DOIs
    Publication statusPublished - Aug 2012

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