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 12 in Handbook of Investment Analysis, Portfolio Management, and Financial Derivatives:In 4 Volumes, 2024, pp 399-449 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, 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: Financial Accounting; Financial Auditing; Mutual Funds; Hedge Funds; Asset Pricing; Options; Portfolio Analysis; Risk Management; Investment Analysis; Momentum Analysis; Behavior Analysis; Futures; Index Futures; CDCs; Financial Econometrics; Statistics; Financial Derivatives; Financial Accounting (search for similar items in EconPapers)
JEL-codes: G1 G11 G12 G3 M41 M42 (search for similar items in EconPapers)
Date: 2024
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