Capital Structure Decisions: Which Factors are Reliably Important?

Frank, Murray Z.; Goyal, Vidhan K.

doi:10.2139/ssrn.567650

Cited by 551 publications

(1,006 citation statements)

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“…Following Graham and Tucker (2006) and Frank and Goyal (2009), I use control variables known to affect the capital structure. Several studies have shown that depreciation and investment tax credits, as NDTS, substitute for debt (MacKie-Mason 1990;Dhaliwal et al 1992;Trezevant 1992).…”

Section: Control Variablesmentioning

confidence: 99%

“…I include ROA as a control for the effect of profitability on the use of debt. In addition, since Frank and Goyal (2009) document that firms with highly collateralizable assets, such as inventory, property, plant, and equipment, use more debt, I include a collateral variable, the proportion of assets that are collateralizable, as a control variable. All of the independent variables, with the exception of Dep, IndDebt/asset and Lag5(debt/asset), are lagged by one period, because their current year values could have been affected by debt policy.…”

Section: Control Variablesmentioning

confidence: 99%

“…Treasury-Bill rates are high), firms will tend to reduce their use of debt financing (Frank and Goyal 2009). Panel A of Fig.…”

Section: Descriptive Statisticsmentioning

confidence: 99%

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Tax avoidance and underleverage puzzle: Korean evidence

Lim

2011

Rev Quant Finan Acc

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This paper examines whether tax avoidance substitutes for the use of debt, as well as investigating the impact of the tax-exhaustion effect and the cost of debt in this relationship. Applying a modified version of the tax-avoidance measure in Desai and Dharmapala (Rev Econ Stat 91:537-546, 2006), I determine the marginal substitution effect of tax avoidance for the use of debt for a large sample of Korean firms, generalizing the evidence of Graham and Tucker (J Financ Econ 81:563-594, 2006). Furthermore, I find that the debt-substitution effect increases with the probability of losing tax shields, suggesting that the tax-exhaustion effect interacts with the debt-substitution effect. In addition, the debt-substitution effect becomes stronger when the cost of debt is high, indicating that the cost of debt is a determinant of the substitution effect. The debt-substitution effects of tax avoidance suggest that tax-avoidance activities could offer a partial explanation for the underleverage puzzle.

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Section: Control Variablesmentioning

confidence: 99%

Section: Control Variablesmentioning

confidence: 99%

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Tax avoidance and underleverage puzzle: Korean evidence

Lim

2011

Rev Quant Finan Acc

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“…The implications of this theory of equity market timing are that there should be an inverse relationship between capital structure and market value, and that the adjustment of the capital structure to its target level is a long and slow process. However, considerable theoretical development and empirical testing are needed (Frank and Goyal, 2004) before this can stand as an independent theory.…”

Section: Equity Market Timing and Capital Structurementioning

confidence: 99%

The Determinants of Capital Structure: Evidence from Chinese Listed Companies

2005

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This paper attempts to investigate the determinants of the capital structure of a sample of 972 listed companies on the Shanghai Stock Exchange and Shenzhen Stock Exchange in China in 2003. Various theories, namely, the trade-off, pecking order and agency theories, are deployed to explain and predict the signs and significance of each factor identified by Ragan and Zingales (1995) and Booth et al. (2001). Furthermore, we include institutional shareholdings, including state agency shareholdings, state-owned shareholdings and privately owned shareholdings, as corporate governance variables to examine the effects of corporate structure on the debt financing behaviours. As well documented, we find that profitability is negatively related to capital structure at a highly significant level. The size and risk of the firms are positively related to the debt ratio – but only in term of market value measures of capital structure. The years of the companies being listed on stock markets are positively related to capital structure, indicating the access of the firms to debt finance is more easily judged by book value. Tax is not a factor in influencing debt ratio. Ownership structure has a negative effect on the capital structure. The firms with higher institutional shareholdings tend to avoid using debt financing, a behaviour that can be explained by entrenchment effects. A further classification of the institutional shareholders reveals that, among the three groups of institutional shareholding, the state institutions, including state agency and state-owned institutions, were more averse to debt financing, particularly for state-owned institutions. There is no strong evidence indicating debt-averse behaviour by domestic institutional shareholders. Copyright Springer 2005capital structure, ownership structure, G31, G32,

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“…The contribution of this paper can be outlined in two elements: (a) it is the first attempt to employ subset selection criteria for capital structure modeling in a transition market, (b) In this study, the authors employ ten subsets selection criteria, while recently, using data from a developed market, Frank and Goyal (2004) present a study of choosing the most reliable determinants of capital structure. They used only one criterion, which is the Bayesian Information Criterion (BIC), for the purpose of subset selection.…”

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confidence: 99%

Modeling capital structure decisions in a transition market: empirical analysis of firms in Egypt

Eldomiaty

Ismail

2008

Rev Quant Finan Acc

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It has been realized that none of the three basic theories of capital structure presents a complete answer to the actual determinants of corporate financing decisions. This study attempts to model the practice of capital structure decisions according to the basic premises of each theory of capital structure: trade-off theory, pecking-order theory and free cash flow theory. The methodology addresses modeling long-term and short-term debt financing decisions based on ten different statistical criteria using data from Egypt stock market. The empirical evidence indicates that four models of corporate financing are influenced by the trade-off theory relatively. The contributions of this paper are as follows. First, this study offers a more refined and comprehensive methodology for modeling firms' capital structure decisions. Second, the results of this study compare to those of previous studies of other developing countries and thus add an element of external validity.

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Capital Structure Decisions: Which Factors are Reliably Important?

Cited by 551 publications

References 84 publications

Tax avoidance and underleverage puzzle: Korean evidence

Tax avoidance and underleverage puzzle: Korean evidence

The Determinants of Capital Structure: Evidence from Chinese Listed Companies

Modeling capital structure decisions in a transition market: empirical analysis of firms in Egypt

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