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How Do Firms Make Capital Structure Decisions When Facing Big Events? The Case of Hospital Corporation of America (HCA)

Mona Yaghoubi (), Reza Yaghoubi and Graeme Guthrie
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Mona Yaghoubi: University of Canterbury, http://www.canterbury.ac.nz

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: In this paper we investigate the financing behaviour of Hospital Corporation of America (HCA) for the years 1990 to 2013. We study the variations in HCA’s market and book leverage ratios due to 1) mergers and acquisitions, and divestitures that change a firm’s total assets, 2) buybacks, and 3) leveraged buyouts and public o˙erings that change the firm’s ownership. We scrutinize HCA’s market and book leverage ratios’ variations independently as well as relative to each other during the same periods of time. We find that i) HCA’s management team used HCA’s excess cash from divestitures to repurchase $1.7 billion of HCA’s stocks and they also called about $1.35 billion of HCA’s debt, ii) HCA’s market leverage ratio tends to stay in a target leverage zone, and iii) in some years HCA’s management team used the book leverage ratio as a tool to keep the market leverage ratio inside a target leverage zone.

Keywords: Capital structure dynamics; share buyback; leveraged buyout; mergers and acquisitions; initial public offerings (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-cfn
Date: 2018-11-01
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http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1821.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:18/21

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