Beruflich Dokumente
Kultur Dokumente
A mix of a company's long-term debt, short term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of fund.
JOURNAL OF FINANCE
Vol. 43, No. 1 (Mar., 1988) pages. 1-19
INTRODUCTION
1.
2.
3.
This paper analyzes the explanatory power of some of the recent theories of optimal capital structure The study extends empirical work on capital structure theory in three ways. Broader set of capital structure theories The authors analyze measures of short-term, longterm, and convertible debt rather than an aggregate measure of total debt The study uses a factor-analytic technique that mitigates the measurement problems encountered when working with proxy variables.
BASIS OF STUDY
Previous Studies lack following factors:
1.
2.
3.
Measurement errors in the proxy variables may be correlated with measurement errors in the dependent
variable
OBJECTIVES
Technique is used that explicitly recognizes and mitigates the measurement problems discussed above.
PROBLEM STATEMENT
DATA COLLECTION
Data is collected from Large Firms. In total, 469 firms were available. The variables discussed in the previous sections were analyzed over the 1974 through 1982 time Period.
SECONDARY DATA
The source of all the data is the ANNUAL COMPUSTAT INDUSTRIAL FILES and from the U.S. DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS, "Employment And Earnings" publication.
MODEL
Technique used by author is Linear Structural Modelling. This method assumes that, although the relevant attributes are not directly observable, we can observe a number of indicator variables that are linear functions of
1.
Measurement Model.
2.
Structural Model.
Measurement Model
Unobservable firm-specific attributes are measured by Relating them to observable variables, e.g., Accounting Data.
Structural Model
Measured debt ratios are specified as functions of the Attributes defined in the measurement model.
VARIABLES
Dependent Variables
Independent Variables
Collateral Value of Assets Non-Debt Tax Shields Growth Uniqueness Industry Classification Size Volatility Profitability
HYPOTHESIS
HA = ACCEPTED
Ho = It is observable attribute
HA = It is unobservable attribute HA = ACCEPTED
GROWTH
Growth Rates
Ho = It is observable attribute
HA = It is unobservable attribute
HA = ACCEPTED
UNIQUENESS
Uniqueness
Capital Structure Choice
Ho = It is observable attribute
HA = It is unobservable attribute
Ho = ACCEPTED
INDUSTRY CLASSIFICATION
Manufacturing Firms Ho = It is observable attribute
HA = It is unobservable attribute
Capital Structure Choice
HA = ACCEPTED
SIZE
Small Firm +ve
Short Term Debt in Capital Structure
Large Firms
+ve
VOLATILITY OF EARNINGS
Volatility Of Earnings
PROFITABILITY
Profitability
Capital Structure Choice
Ho = It is observable attribute
HA = It is unobservable attribute
HA = ACCEPTED
TEST
T- Test Chi-Square
FINDINGS
1.
In particular, Author find that debt levels in Capital Structure are negatively related o the "uniqueness of a firm's line of business. Short-term debt ratios were shown to be negatively related to firm size.
2.
3. Authors results do not provide support for an effect on Capital Structure Choice arising from Non-debt Tax Shields Volatility Collateral Value Future Growth
CONCLUSION
This paper introduced a factor-analytic technique for estimating the impact of unobservable attributes on the choice of corporate debt ratios. While our results are not conclusive, they serve to document empirical regularities that are consistent with existing theory. (Titman & Wessels)
LIMITATIONS
It remains an open question whether our measurement model does indeed capture the relevant aspects of the attributes suggested by these theories. One could argue that the predicted effects were not uncovered because the indicators used in this study do not adequately reflect the nature of the attributes suggested by theory. (Titman & Wessels)
SUGGESTIONS
If stronger linkages between observable indicator variables and the relevant attributes can be developed, then the methods suggested in this paper can be used to test more precisely the extant theories of optimal capital structure choice.
Questions?