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Journal of Corporate Finance Vol. 48 2018

Asymmetries in the Firm's use of debt to changing market values

Stephen P. Ferris1; Jan Hanousek2,3; Anastasiya Shamshur4; Jiri Tresl

1 University of Missouri · 2 Center for Economic Research and Graduate Education – Economics Institute · 3 Charles University · 4 University of East Anglia

open access

Abstract

Using a sample of U.S. firms over the period, 1984 to 2013, this study examines the relation between market and book leverage ratios. Unlike Welch (2004) who contends that changes in market leverage do not induce adjustments in book leverage, we find an asymmetric effect. That is, firms adjust their book leverage only when the changes in market leverage are due to increases in equity values. No adjustment is observed when firm equity values decrease. Our results are consistent with Myers (1977) and Barclay et al. (2006) who argue that optimal debt levels decrease with corporate growth opportunities.

DOI
10.1016/j.jcorpfin.2017.12.006
Volume
48
Pages
542-555
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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