Capital structure dynamics and transitory debt

Harry DeAngelo, Linda DeAngelo and Toni Whited

Journal of Financial Economics, 2011, vol. 99, issue 2, 235-261

Abstract: Firms deliberately but temporarily deviate from permanent leverage targets by issuing transitory debt to fund investment. Leverage targets conservatively embed the option to issue transitory debt, with the evolution of leverage reflecting the sequence of investment outlays. We estimate a dynamic capital structure model with these features and find that it replicates industry leverage very well, explains debt issuances/repayments better than extant tradeoff models, and accounts for the leverage changes accompanying investment "spikes." It generates leverage ratios with slow average speeds of adjustment to target, which are dampened by intentional temporary movements away from target, not debt issuance costs.

Keywords: Dynamic; capital; structure; Financial; flexibility; Target; capital; structure (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (174)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-405X(10)00217-5
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:99:y:2011:i:2:p:235-261

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().