Growth status and persistence in the cross section of corporate capital structure

This project looks at the connection between growth status and the cross-section of corporate capital structure. To begin with, I propose early growth status, an idea depending on a two-way sort on firms’ market-to-book and asset tangibility in early yrs after Initial public offering, not just records the cross-sectional variants in leverage ratios, but in addition unveils the time in-variant evolutions in capital structure. That’s, high (low) growth status firms normally have stable low (high) leverage over extended periods of time. Next, the notion that growth firms can rationally gain from new equity issues under better market conditions is constant with the generalized Myers and Majluf model in the literature. I propose growth status can rationally figure out funding costs through both tangibility and growth possibilities. Finally, the truth that leverage ratios are identified in the early yrs instantly casts questions on the market-timing theory of capital structure. In contrast to year-by-year market-to-book ratios, whose variants can provide rise to corporate market-timing, the formerly recognized methods have little related to future market-timing. Organizations in the three growth status (high, mixed, and low) groups have constantly unique qualities. While market-timing might impact year-by-year financial debt and equity issues, it does not alter the usual course of leverage. In a horse race, growth status determined variable totally overtakes the Baker and Wurgler (2002) market-timing variable in figuring out long-term capital structure at the organization level. I personally deduce that growth status brings about fair market-timing and eventually determines capital structure….

Chapter 1 Introduction
Chapter 2 Literature Review
2.1 The Modigliani and Miller Theorem
2.2 The Tradeoff Theory
2.2.1 Firm Characteristics and the Costs and Benefits of Debt
2.2.2 Firm Value and Leverage Changes
2.2.3 Target Adjustment and Leverage Persistence
2.3 The Pecking Order Theory
2.4 The Generalized Myers and Majluf Model
2.5 The Market-Timing Theory
Chapter 3 Sample Selection and Variable Definition
3.1 Data
3.2 Variables and Leverage
3.2.1 Market-to-book Ratio
3.2.2 Tangibility
3.2.3 Profitability
3.2.4 Firm Size
3.2.5 Industry Median Leverage
3.2.6 Dividend Paying Status
3.3 Descriptive Statistics
Chapter 4
4.1 Leverage Persistence
4.2 Initial Growth Status
4.2.1 Initial GrowtStatus Sorted Leverage Portfolios are Persistent
4.2.2 Initial Market-to-book Ratio and Initial Tangibility have Long Lasting Effects on Leverage
4.2.3 Growth Status is Stable
4.2.4 Leverage Persistence Holds in Calendar Time
4.2.5 Leverage and Characteristics Dispersions are Statistically Significant
4.3 Remarks
Chapter 5
5.1 Target Formation
5.2 Remarks
Chapter 6 Growth Status, Market-Timing and Ultimate Determinant of Leverage
6.1 Debt and Equity Issues under Market-Timing and Tradeoff Forces
6.1.1 Market-to-book Ratio
6.1.2 Tangibility
6.1.3 Profitability
6.1.4 Firm Size
6.1.5 Industry Median Leverage and Dividend Paying Status
6.1.6 Remarks
6.2 Changes in Leverage Contributed by Debt and Equity Changes…

Source: City University of Hong Kong

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