The Joint Determinants of Capital Structure and Stock Rate of Return: A LISREL Model Approach

Hong-Yi Chen (), Cheng Few Lee and Tzu Tai ()
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Hong-Yi Chen: National Chengchi University, Wenshan District, Taipei City, Taiwan
Tzu Tai: Mezocliq LLC, New York, NY, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2019, vol. 22, issue 02, 1-51

Abstract: We develop a simultaneous determination model of capital structure and stock returns. Specifically, we incorporate the managerial investment autonomy theory into the structural equation modeling with confirmatory factor analysis to jointly determine the capital structure and stock return. Besides attributes introduced in previous studies, we introduce indicators affecting a firm’s financing decision, such as managerial entrenchment, macroeconomic factors, government financial policy, and pricing factors. Empirical results show that stock returns, asset structure, growth, industry classification, uniqueness, volatility, financial rating, profitability, government financial policy, and managerial entrenchment are major factors of the capital structure.

Keywords: LISREL; structural equation modeling (SEM); confirmatory factor analysis (CFA); capital structure (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1142/S0219091519500139

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