Influence of stock return volatility on corporate leverage: evidence from an emerging economy

Pankaj Chaudhary

Global Business and Economics Review, 2024, vol. 30, issue 3, 329-347

Abstract: Volatility is an essential aspect of the field of finance. It reflects the firms' risk and is always considered in personal finance. However, it is largely ignored in corporate finance. We attempt to examine the role of stock return volatility on the corporate leverage of Indian firms. We use the GARCH(1, 1) model to measure the stock return volatility, in addition to the simple standard deviation. We use the dynamic panel data methodology to deal with endogeneity issues. This paper considers three book-value-based leverages, namely short-term debt, long-term debt and total debt; in addition, two market-value-based leverages, i.e., total market leverage and long-term market leverage, are also employed in this study. We find that the stock return volatility negatively influences all three measures of book value leverage. Further, we observed that volatility is negatively and significantly associated with market-based leverage.

Keywords: leverage; stock return volatility; GARCH; GMM; risk. (search for similar items in EconPapers)
Date: 2024
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