An Empirical Target Zone Model of Dynamic Capital Structure PDF Download

Author: Arthur G. Korteweg
Publisher:
ISBN:
Category :
Languages : en
Pages : 53

View

Book Description
We develop and estimate a general (S, s) model of capital structure to investigate the relation between target leverage, refinancing thresholds, and firm characteristics in a dynamic environment. We find that firms' target leverage is pro-cyclical, consistent with dynamic capital structure models, but in contrast to traditional regression results. The target leverage zone, in which companies optimally allow leverage to float, widens during recessions. Most of the time series variation in capital structure policy variables is due to aggregate macroeconomic factors, rather than changes in firm-specific variables.

Author: Michael R. Roberts
Publisher:
ISBN:
Category :
Languages : en
Pages : 53

View

Book Description
This paper examines the dynamic properties of capital structure in a state-space framework. A system of stochastic differential equations is used to specify the dynamics for a firm's debt-to-equity ratio and the determinants of capital structure. The framework addresses statistical issues such as measurement error, missing data and endogeneity. There are several important results. First, firms gradually adjust their capital structure to a firm-specific, time-varying target, as opposed to a fixed level or industry average. Second, the rate at which they revert back to the target depends on several factors: the current position of their leverage relative to the target, their industry, and their financial health. Finally, the statistical issues have a significant impact on the results and subsequent conclusions. The primary economic conclusion is that observed financing behavior may be driven by concerns over credit-worthiness and access to external funds.

Author: Christian Weidinger
Publisher: GRIN Verlag
ISBN: 3656082340
Category : Business & Economics
Languages : en
Pages : 40

View

Book Description
Seminar paper from the year 2010 in the subject Economics - Finance, grade: 1.3, University of Regensburg, language: English, abstract: Since Modigliani/Miller’s famous theorem (1958) that capital structure is irrelevant for firm valuation, firms’ capital structure choice has been one of the most significant subjects in the modern finance theory. The subsequent theoretical literature has found evidence to negate the irrelevance theorem. Most empirical studies applied a static framework and are capable to explain differences in the optimal leverage ratios across firms, using observed leverage ratios as proxies for the optimal target leverage, but do not explain observed differences in firms’ leverage ratios itself. One broadly accepted reason for a firm’s deviation from their target leverage ratio is the existence of adjustment costs. In the presence of adjustment costs, firms may deviate from their target leverage and find it not cost effective to adjust their leverage ratio frequently or fully within one period, even if they recognize that their existing capital structure is not optimal. This shows the need for developing and using a dynamic approach in order to examine firms’ capital structure. The paper is organized as follows. Section 2 provides a brief overview of the three main theories of capital structure. Section 3 specifies the dynamic partial-adjustment model and describes the variables that may affect the target capital structure as well as the adjustment speed. Section 4 reports the empirical results and Section 5 concludes the paper

Author: Christopher Parsons
Publisher: Now Publishers Inc
ISBN: 160198202X
Category : Business & Economics
Languages : en
Pages : 107

View

Book Description
Empirical Capital Structure reviews the empirical capital structure literature from both the cross-sectional determinants of capital structure as well as time-series changes.

Author: Sergey Tsyplakov
Publisher:
ISBN:
Category :
Languages : en
Pages : 64

View

Book Description
This paper presents a continuous time model of a firm that can dynamically adjust both its capital structure and its investment choices. The model extends the dynamic capital structure literature by endogenizing the investment choice as well as firm value, which are both determined by an exogenous price process that describes the firm's product market. Within the context of this model we explore interactions between financial distress costs and debtholder/equityholder agency problems and examine how the ability to dynamically adjust the capital structure choice affects both target debt ratios and the extent to which actual debt ratios deviate from their targets. In particular, we examine how financial distress and the firm's objectives, i.e., whether it makes choices to maximize total firm value versus equity value, influence the extent to which firms make financing choices that move them towards their target debt ratios.

Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :

View

Book Description

Author: Cheng-Few Lee
Publisher: Springer Science & Business Media
ISBN: 0387771174
Category : Business & Economics
Languages : en
Pages : 1700

View

Book Description
Quantitative finance is a combination of economics, accounting, statistics, econometrics, mathematics, stochastic process, and computer science and technology. Increasingly, the tools of financial analysis are being applied to assess, monitor, and mitigate risk, especially in the context of globalization, market volatility, and economic crisis. This two-volume handbook, comprised of over 100 chapters, is the most comprehensive resource in the field to date, integrating the most current theory, methodology, policy, and practical applications. Showcasing contributions from an international array of experts, the Handbook of Quantitative Finance and Risk Management is unparalleled in the breadth and depth of its coverage. Volume 1 presents an overview of quantitative finance and risk management research, covering the essential theories, policies, and empirical methodologies used in the field. Chapters provide in-depth discussion of portfolio theory and investment analysis. Volume 2 covers options and option pricing theory and risk management. Volume 3 presents a wide variety of models and analytical tools. Throughout, the handbook offers illustrative case examples, worked equations, and extensive references; additional features include chapter abstracts, keywords, and author and subject indices. From "arbitrage" to "yield spreads," the Handbook of Quantitative Finance and Risk Management will serve as an essential resource for academics, educators, students, policymakers, and practitioners.

Author: Paul Damien
Publisher: Oxford University Press
ISBN: 0199695601
Category : Mathematics
Languages : en
Pages : 717

View

Book Description
This volume guides the reader along a statistical journey that begins with the basic structure of Bayesian theory, and then provides details on most of the past and present advances in this field.

Author: Mr.Ari Aisen
Publisher: International Monetary Fund
ISBN: 1455211907
Category : Business & Economics
Languages : en
Pages : 30

View

Book Description
The purpose of this paper is to empirically determine the effects of political instability on economic growth. Using the system-GMM estimator for linear dynamic panel data models on a sample covering up to 169 countries, and 5-year periods from 1960 to 2004, we find that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission, we find that political instability adversely affects growth by lowering the rates of productivity growth and, to a smaller degree, physical and human capital accumulation. Finally, economic freedom and ethnic homogeneity are beneficial to growth, while democracy may have a small negative effect.

Author: Christian Riis Flor
Publisher:
ISBN:
Category :
Languages : en
Pages : 44

View

Book Description
The determinants of the leverage of firms are widely used as a means to study optimal capital structure decisions. However, empirical studies do not agree on the importance of several commonly proposed determinants. We provide a dynamic capital structure model which endogenously generates the indeterminacy found in empirical studies, and thus we explain why such studies are inherently deemed to be problematic. Specif cally, we demonstrate how interdependence between leverage determinants can cause us to falsely reject important correlations. Our findings add to the insights of the challenges attached to understanding how firms choose their capital structure.