Target Behavior and Financing: How Conclusive Is the Evidence?

Xin Chang and Sudipto Dasgupta

Journal of Finance, 2009, vol. 64, issue 4, 1767-1796

Abstract: The notion that firms have a debt ratio target that is a primary determinant of financing behavior is influential in finance. Yet, how definitive is the evidence? We address this issue by generating samples where financing is unrelated to a firm's current debt ratio or a target. We find that much of the available evidence in favor of target behavior based on leverage ratio changes can be reproduced for these samples. Taken together, our findings suggest that a number of existing tests of target behavior have no power to reject alternatives.

Date: 2009
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https://doi.org/10.1111/j.1540-6261.2009.01479.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:64:y:2009:i:4:p:1767-1796

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