Determinants of target capital structure: The case of dual debt and equity issues |
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| Institution: | 1. Zicklin School of Business, Baruch College, New York, NY 10010, USA;2. Graduate School of Business, Fordham University, New York, NY 10023, USA;3. Department of Finance, Carroll School of Management, Boston College, Fulton Hall 336, Chestnut Hill, MA 02467, USA;1. New York University Shanghai, 1555 Century Avenue, Shanghai 200122, China;2. Fundação – Dom Cabral, Campus RJ—Av. Afrânio de Melo Franco, 290, 2° andar Leblon, 22430-060 Rio de Janeiro, RJ, Brazil;3. Ben-Gurion University of the Negev, P.O. Box 653, Beer-Sheva 8410501, Israel;4. Sapir Academic College, Hof Ashkelon 79165, Israel;1. Northumbria University, United Kingdom;2. Zagazig University, Egypt;3. Bradford University, United Kingdom;1. Institute of Materials Resource Management, Faculty of Mathematics and Natural Sciences, University of Augsburg, Alter Postweg 101, 86135 Augsburg, Germany;2. Department of Finance, Audit, Accounting and Control, ICN Business School Nancy-Metz (Grande école) − CEREFIGE, 3 place Edouard Branly, 57070 Metz, France;1. University of East London Business and Law School, United Kingdom;2. London Metropolitan University, Business School, United Kingdom |
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| Abstract: | We examine whether market and operating performance affect corporate financing behavior because they are related to target leverage. Our focus on firms that issue both debt and equity enhances our ability to draw inferences. Consistent with dynamic trade-off theories, dual issuers offset the deviation from the target resulting from accumulation of earnings and losses. Our results also imply that high market-to-book firms have low target debt ratios. On the other hand, consistent with market timing, high stock returns increase the probability of equity issuance but have no effect on target leverage. |
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