Impact of Interest Rate Swaps on Corporate Capital Structure: An Empirical InvestigationJian Yang (), George C. Davis and David J Leatham Applied Financial Economics, 2001, vol. 11, issue 1, pages 75-81 Abstract: Interest rate swaps are the most popular financial derivatives used by US firms. In this paper, the effects of swap usage on corporate financing decisions are empirically examined. Based on a dynamic capital structure theoretical model, a seemingly unrelated regression model with a heteroscedasticity-consistent covariance estimator to estimate these effects is employed. The empirical results show that the firms with higher effective tax rates reduce their optimal debt ratio range when they use interest rate swaps. It was also found that the swap users may enlarge the influence of firm size on corporate dynamic debt policy, though it was not clear that it helped reduce or increase the optimal debt ratio range. No effect of swaps usage on the optimal debt ratio range was found related to bankruptcy costs and the volatility of income. The findings imply that the use of swaps can help firms stick to an initial high debt ratio and make more use of the large tax benefits of debts on debt financing decisions. Copyright 2001 by Taylor and Francis Group Date: 2001 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:taf:apfiec:v:11:y:2001:i:1:p:75-81 Ordering information: This journal article can be ordered from Access Statistics for this article Applied Financial Economics is edited by Mark P. Taylor More articles in Applied Financial Economics from Taylor and Francis Journals |
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