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

Hong-Yi Chen, Cheng Few Lee and Tzu Tai

Chapter 35 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 1345-1397 from World Scientific Publishing Co. Pte. Ltd.

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, macro-economic 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: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
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Journal Article: The Joint Determinants of Capital Structure and Stock Rate of Return: A LISREL Model Approach (2019)
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