Capital structure: The case of firms issuing debt

Yushu Zhu

Australian Journal of Management, 2012, vol. 37, issue 2, 283-295

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

Keywords: capital structure; endogeneity; panel model; spurious ratio (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:37:y:2012:i:2:p:283-295

DOI: 10.1177/0312896211429159

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