What question did this study set out to answer?

To determine whether corporate capital structures remain stable over time and evaluate whether target-leverage models explain observed leverage dynamics.

March 26, 2014The Journal of Finance

How Stable Are Corporate Capital Structures?

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Authors

HDHarry DeAngeloUniversity of Southern California RRRichard RollUniversity of California, Los Angeles

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Implication

Longitudinal analysis reveals marked instability in corporate leverage over time, indicating that maintaining stable target capital structures is rare among firms.

Key Points

To determine whether corporate capital structures remain stable over time and evaluate whether target-leverage models explain observed leverage dynamics.
Examined temporal persistence and cross-sectional variations in corporate debt-to-assets ratios across multiple-year intervals.
Evaluated shifts in industry-median leverage across historical periods, including the post-war economic boom.
Tested the capacity of target-leverage models with varying weight on target retention to replicate empirical cross-sectional leverage patterns.
Cross-sectional leverage distributions diverged substantially over lengthening time horizons, with stable capital structures occurring only temporarily and predominantly at low leverage levels.
Few firms maintained debt-to-assets ratios consistently exceeding 0.500, and industry-median leverage fluctuated substantially over time.
Target-leverage models that assign minimal or no weight to preserving a specific ratio successfully replicated the empirical instability of corporate leverage cross-sections.

Cite This Study

DeAngelo et al. (2014) studied this question.

synapsesocial.com/papers/69d6cbd0fca0359822aa88b3 https://doi.org/10.1111/jofi.12163

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Implication

Longitudinal analysis reveals marked instability in corporate leverage over time, indicating that maintaining stable target capital structures is rare among firms.

How Stable Are Corporate Capital Structures?

Discussion

Member takes

Implication

Key Points

Cite This Study

How Stable Are Corporate Capital Structures?

Discussion

Member takes

Implication

Key Points

Cite This Study

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