Capital Structure and Stock Returns: The European Evidence
AbstractUsing a panel of 425 European firms over the period from 1990 to 2005, we revisit Welch's (2004) finding that stock returns are the primary determinant of capital structure changes and that corporate motives for net issuing activities are largely a mystery. We document that roughly half of the variation in leverage measures can be explained by stock return-induced effects on the capital structure over 1- and 5-year horizons. In contrast to the US evidence, corporate issuing activities are not as pronounced in our European sample, but they nevertheless seem to be sufficient for firms to follow target debt ratios in the long run. Our findings are consistent with recent evidence for dynamic rebalancing of the capital structure within a target range in the presence of adjustment costs (e.g., Leary and Roberts, 2005; Kayhan and Titman, 2007). In a horse race with stock returns, traditional capital structure variables are inferior in explaining corporate leverage ratios and readjustments in response to return-induced changes in the short run, but they retain a significant role in the long run.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Faculty of Business and Economics - University of Basel in its series Working papers with number 2007/18.
Date of creation: 2007
Date of revision:
Capital structure; dynamic adjustment; panel models;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Panayiotis Artikis & Georgia Nifora, 2012. "Capital Structure, Macroeconomic Variables & Stock Returns. Evidence from Greece," International Advances in Economic Research, Springer, vol. 18(1), pages 87-101, February.
- Panayotis Artikis & Georgia Nifora, 2011. "Leverage and Returns in Three Countries of Southern European Region," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 3-26.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (WWZ).
If references are entirely missing, you can add them using this form.