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

Ferris, Stephen P., Hanousek, Jan, Shamshur, Anastasiya and Tresl, Jiri (2018) Asymmetries in the Firm's use of debt to changing market values. Journal of Corporate Finance, 48. 542–555. ISSN 0929-1199

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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.

Item Type: Article
Uncontrolled Keywords: market leverage,book leverage,capital structure,adjustment speed
Faculty \ School: Faculty of Social Sciences > Norwich Business School
UEA Research Groups: Faculty of Social Sciences > Research Groups > Finance Group
Related URLs:
Depositing User: Pure Connector
Date Deposited: 15 Dec 2017 13:36
Last Modified: 21 Oct 2022 17:32
DOI: 10.1016/j.jcorpfin.2017.12.006


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