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Debt Capacity and Tests of Capital Structure Theories

Journal of financial and quantitative analysis, 2010-10, Vol.45 (5), p.1161-1187 [Peer Reviewed Journal]

Copyright © Michael G. Foster School of Business, University of Washington 2010 ;Copyright 2010 Michael G. Foster School of Business ;Copyright University of Washington, School of Business Administration Oct 2010 ;ISSN: 0022-1090 ;EISSN: 1756-6916 ;DOI: 10.1017/S0022109010000499 ;CODEN: JFQAAC

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  • Title:
    Debt Capacity and Tests of Capital Structure Theories
  • Author: Lemmon, Michael L. ; Zender, Jaime F.
  • Subjects: Bond rating ; Capital structure ; Companies ; Debt ; Debt capacity ; Debt financing ; Debt to equity ratio ; Deficit financing ; Equity ; Equity financing ; Financial leverage ; Financing ; Impact analysis ; Pecking order theory ; Public debt ; Studies
  • Is Part Of: Journal of financial and quantitative analysis, 2010-10, Vol.45 (5), p.1161-1187
  • Description: We examine the impact of explicitly incorporating a measure of debt capacity in recent tests of competing theories of capital structure. Our main results are that if external funds are required, in the absence of debt capacity concerns, debt appears to be preferred to equity. Concerns over debt capacity largely explain the use of new external equity financing by publicly traded firms. Finally, we present evidence that reconciles the frequent equity issues by small, high-growth firms with the pecking order. After accounting for debt capacity, the pecking order theory appears to give a good description of financing behavior for a large sample of firms examined over an extended time period.
  • Publisher: New York, USA: Cambridge University Press
  • Language: English
  • Identifier: ISSN: 0022-1090
    EISSN: 1756-6916
    DOI: 10.1017/S0022109010000499
    CODEN: JFQAAC
  • Source: Alma/SFX Local Collection
    ProQuest Central
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