The effect of state laws on capital structure |
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Authors: | John K. Wald Michael S. Long |
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Affiliation: | 1. Department of Finance, College of Business Administration, The University of Texas at San Antonio, One UTSA Circle, San Antonio, TX 78249, USA;2. Department of Finance, Rutgers Business School, Newark and New Brunswick, Rutgers University, Newark, NJ 07102, USA |
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Abstract: | US manufacturing firms incorporated in states with stronger payout restrictions use less debt, while antitakeover statutes do not significantly reduce long-run leverage. Correcting for the endogenously determined choice of where to incorporate, we find that firms sort themselves according to state laws and capital structure needs. After accounting for self-selection, state antitakeover laws are positively associated with debt as a fraction of market value, possibly due to lower market values for these firms. Payout restrictions appear to reduce leverage for firms that have not reincorporated outside their home states. These constraints explain part of the negative relation between profitability and leverage. |
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Keywords: | G32 K22 |
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