Nonparametric models of financial leverage decisions
AbstractThis paper investigates the properties of nonparametric decision tree models in the analysis of financial leverage decisions. This approach presents two appealing features: the relationship between leverage ratios and the explanatory variables is not predetermined but is derived according to information provided by the data, and the models respect the bounded and fractional nature of leverage ratios. The analysis shows that tree models suggest relationships between explanatory variables and the relative amount of issued debt that parametric models fail to capture. Furthermore, the significant relationships found by tree models are in most cases in accordance with the effects predicted by the pecking-order theory. The results also show that two-part tree models can accommodate better the distinct effects of explanatory variables on the decision to issue debt and on the amount of debt issued by firms that do resort to debt.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for Applied Mathematics and Economics (CEMAPRE), School of Economics and Management (ISEG), Technical University of Lisbon in its series CEMAPRE Working Papers with number 1005.
Length: 25 pages
Date of creation: Sep 2010
Date of revision:
Capital structure; Fractional regression; Decision trees; Two-part models;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Villani, Mattias & Kohn, Robert & Nott, David J., 2012. "Generalized smooth finite mixtures," Journal of Econometrics, Elsevier, vol. 171(2), pages 121-133.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helena Lima).
If references are entirely missing, you can add them using this form.