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Is There an Optimal Industry Financial Structure?

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  • Peter MacKay
  • Gordon M. Phillips

Abstract

We examine how intra-industry variation in financial structure relates to industry factors and whether real and financial decisions are jointly determined within competitive industries. We find that industry and group factors beyond standard industry fixed effects are also important to firm financial structure. Firm financial leverage, capital intensity, and cash-flow risk are interdependent decisions that depend on the firm's proximity to the median industry capital-labor ratio, the actions of firms within its industry quintile, and its status as entrant, incumbent, or exiting firm. Our results support competitive industry equilibrium models of financial structure in which debt, technology, and risk are simultaneous decisions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9032.

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Date of creation: Jun 2002
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Publication status: published as MacKay, Peter and Gordon M. Phillips. “How Does Industry Affect Firm Financial Structure?” The Review of Financial Studies (December 2005).
Handle: RePEc:nbr:nberwo:9032

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Cited by:
  1. DeYoung, Robert & Yom, Chiwon, 2008. "On the independence of assets and liabilities: Evidence from U.S. commercial banks, 1990-2005," Journal of Financial Stability, Elsevier, vol. 4(3), pages 275-303, September.
  2. Baggs, Jennifer & Brander, James A., 2005. "Liberalisation des echanges, rentabilite et levier financier," Direction des etudes analytiques : documents de recherche 2005256f, Statistics Canada, Direction des etudes analytiques.
  3. Bertrand, Marianne & Schoar, Antoinette, 2003. "Managing With Style: The Effect of Managers on Firm Policies," Working papers 4280-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  4. Daniel M. Covitz & Diana Hancock & Myron L. Kwast, 2002. "Market discipline in banking reconsidered: the roles of deposit insurance reform, funding manager decisions and bond market liquidity," Finance and Economics Discussion Series 2002-46, Board of Governors of the Federal Reserve System (U.S.).
  5. Campello, Murillo, 2006. "Debt financing: Does it boost or hurt firm performance in product markets?," Journal of Financial Economics, Elsevier, vol. 82(1), pages 135-172, October.
  6. Frank, Murray Z. & Goyal, Vidhan K., 2003. "Testing the pecking order theory of capital structure," Journal of Financial Economics, Elsevier, vol. 67(2), pages 217-248, February.
  7. Ignacio Munyo, 2004. "The Determinants of Capital Structure: Evidence from an Economy without Stock Market," Econometric Society 2004 Latin American Meetings 267, Econometric Society.
  8. Jianjun Miao, 2005. "Optimal Capital Structure and Industry Dynamics," Journal of Finance, American Finance Association, vol. 60(6), pages 2621-2659, December.
  9. Andrew Benito, 2003. "The capital structure decisions of firms: is there a pecking order?," Banco de Espa�a Working Papers 0310, Banco de Espa�a.
  10. Jen Baggs & James A Brander, 2006. "Trade liberalization, profitability, and financial leverage," Journal of International Business Studies, Palgrave Macmillan, vol. 37(2), pages 196-211, March.
  11. Acharya, Viral V. & Almeida, Heitor & Campello, Murillo, 2007. "Is cash negative debt? A hedging perspective on corporate financial policies," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 515-554, October.
  12. Daniel M. Covitz & Diana Hancock & Myron L. Kwast, 2004. "Market discipline in banking reconsidered: the roles of funding manager decisions and deposit insurance reform," Finance and Economics Discussion Series 2004-53, Board of Governors of the Federal Reserve System (U.S.).
  13. Campello, Murillo, 2003. "Capital structure and product markets interactions: evidence from business cycles," Journal of Financial Economics, Elsevier, vol. 68(3), pages 353-378, June.
  14. Sporleder, Thomas L. & Moss, Leeann E., 2001. "Capital Structure Decisions Of U.S.-Based Food Processing Firms: A Transaction Cost Economics Perspective," Proceedings: 2001 Regional Committee NC-221, October 1-2, 2001, McLean, Virginia 132394, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
  15. Ivo Welch, 2002. "Capital Structure and Stock Returns," Yale School of Management Working Papers ysm263, Yale School of Management, revised 01 Aug 2003.
  16. Aggarwal, Raj & Zhao, Xinlei, 2007. "The leverage-value relationship puzzle: An industry effects resolution," Journal of Economics and Business, Elsevier, vol. 59(4), pages 286-297.

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