Capital structure and abnormal returns

Yaz Muradoglu and Sheeja Sivaprasad

International Business Review, 2012, vol. 21, issue 3, 328-341

Abstract: This paper examines the relation between capital structure and abnormal returns for UK equities. A firm's industry matters when examining this relation. Abnormal returns decline in firm gearing, however, abnormal returns increase as the average industry gearing in a risk class increases. Separating the average level of external financing in an industry from that in a particular firm is important. This study focuses on industry characteristics. Firms in nonregulated and competitive industries with low concentration ratios exhibit this behavior. In contrast, in the utilities risk class, abnormal returns increase in firm gearing which is similar to the findings of Modigliani and Miller (1958) which was unique to the utilities sector.

Keywords: Abnormal returns; Capital structure; Gearing; Industry (search for similar items in EconPapers)
JEL-codes: D22 G11 G28 G32 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:iburev:v:21:y:2012:i:3:p:328-341

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DOI: 10.1016/j.ibusrev.2011.03.007

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