An Empirical Test of Ross's Cash Flow Beta Theory of Capital Structur e

Timothy F Sugrue and Fredrick C Scherr

The Financial Review, 1989, vol. 24, issue 3, 355-70

Abstract: This paper empirically investigates Stephen A. Ross's (1985) cash flow beta theory of capital structure. Ross hypothesizes that, for firms of similar cash flow variance, there will be an inverse relationship between financial leverage and cash flow beta. This paper provides empirical support for Ross's theory, though the extent of the support depends upon the sample period and the leverage specification. Copyright 1989 by MIT Press.

Date: 1989
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