ynamic corporate capital structure behavior:empirical assessment in the light of heterogeneity and non stationarity

Maria Bontempi, Laura Bottazzi and Roberto Golinelli

No 537, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: Understanding the dynamics of the leverage ratio is at the heart of the empirical research about firms' capital structure, as they can be very different under alternative theoretical models. The pillars of almost all empirical applications are the maintained assumptions of poolability and stationarity, which are motivated by the need of model’s simplicity and treatability, rather than being based on an empirical ground. In this paper we provide robust evidence of non-stationarity for a significantly large share of US firms' debt ratios and of strong heterogeneity in the speeds at which firms adjust towards their targets. These results stimulate new directions of the empirical research on debt ratio dynamics by relying more on the concept of heterogeneous degree of leverage persistence. Keywords: Corporate finance; Heterogeneity of agents; Target leverage; Speed of adjustment; Unit roots and cointegration; JEL Classification: G32, C12, C22, C23, C51

Date: 2015
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Working Paper: Dynamic corporate capital structure behavior: empirical assessment in the light of heterogeneity and non stationarity (2015)
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