EconPapers    
Economics at your fingertips  
 

A New Test of Capital Structure

Colin Mayer () and Oren Sussman

OFRC Working Papers Series from Oxford Financial Research Centre

Abstract: This paper reports a new test of capital structure theories. It uses a filtering technique to identify large investment spikes. We find that the spikes are predominantly financed with debt by large firms and with new equity by small firms. In the process of financing large projects, firms move significantly away from their previous capital structure, as predicted by the pecking order theory. Furthermore, consistent with the pecking order theory, new equity issues are primarily associated with small, loss-making firms. However, we also observe a tendency for firms to adjust back to previous levels of leverage, consistent with a trade-off theory. We conclude that a combination of the pecking order and trade-off theories provides a good description of short-run and longer run dynamics.

JEL-codes: G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-rmg
Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.finance.ox.ac.uk/file_links/finecon_papers/2003fe16.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Working Paper: A New Test of Capital Structure (2004) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sbs:wpsefe:2003fe16

Access Statistics for this paper

More papers in OFRC Working Papers Series from Oxford Financial Research Centre Contact information at EDIRC.
Bibliographic data for series maintained by Maxine Collett ().

 
Page updated 2019-11-14
Handle: RePEc:sbs:wpsefe:2003fe16