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Dynamic Capital Structure: the Case of Hufvudstaden

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  • Graflund, Andreas

    ()
    (Department of Economics, Lund University)

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    Abstract

    This paper introduces a new approach of testing capital structure hypothesis on a firm specific level. Johansen’s procedure for cointegration testing is employed to test theories of optimal capital structure. The sample covers a firm with unique properties, Hufvudstaden, during the period 1938 until present. The approach of cointegration allows testing of long-run equilibrium between non-stationary time-series. We find empirical support that capital structure follow a dynamic equilibrium path. However, this equilibrium is more complex as posited by existing theories. The result is found for leverage measured as both book-value- and market-value-of-equity.

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    File URL: http://swopec.hhs.se/lunewp/papers/lunewp2000_020.pdf
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    Bibliographic Info

    Paper provided by Lund University, Department of Economics in its series Working Papers with number 2000:20.

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    Length: 15 pages
    Date of creation: 14 Nov 2000
    Date of revision:
    Handle: RePEc:hhs:lunewp:2000_020

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    Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
    Phone: +46 +46 222 0000
    Fax: +46 +46 2224613
    Web page: http://www.nek.lu.se/en
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    Keywords: capital structure; cointegration; dynamic capital structure;

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    1. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    4. Fischer, Edwin O & Heinkel, Robert & Zechner, Josef, 1989. " Dynamic Capital Structure Choice: Theory and Tests," Journal of Finance, American Finance Association, vol. 44(1), pages 19-40, March.
    5. Joseph E. Stiglitz, 1972. "On the Irrelevance of Corporate Financial Policy," Cowles Foundation Discussion Papers 339, Cowles Foundation for Research in Economics, Yale University.
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    7. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    8. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
    9. Sarig, Oded & Scott, James, 1985. " The Puzzle of Financial Leverage Clienteles," Journal of Finance, American Finance Association, vol. 40(5), pages 1459-67, December.
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    11. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    12. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
    13. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
    14. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
    15. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    16. Kim, E Han, 1978. "A Mean-Variance Theory of Optimal Capital Structure and Corporate Debt Capacity," Journal of Finance, American Finance Association, vol. 33(1), pages 45-63, March.
    17. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    18. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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