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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. Ignacio Munyo, 2004. "The Determinants of Capital Structure: Evidence from an Economy without Stock Market," Econometric Society 2004 Latin American Meetings, Econometric Society 267, Econometric Society.
  2. 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, Board of Governors of the Federal Reserve System (U.S.) 2002-46, Board of Governors of the Federal Reserve System (U.S.).
  3. Jianjun Miao, 2003. "Optimal Capital Structure and Industry Dynamics," Industrial Organization, EconWPA 0310001, EconWPA.
  4. Viral V. Acharya & Heitor Almeida & Murillo Campello, 2005. "Is Cash Negative Debt? A Hedging Perspective on Corporate Financial Policies," NBER Working Papers 11391, National Bureau of Economic Research, Inc.
  5. 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.
  6. Marianne Bertrand & Antoinette Schoar, 2003. "Managing With Style: The Effect Of Managers On Firm Policies," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(4), pages 1169-1208, November.
  7. 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.
  8. Frank, Murray Z. & Goyal, Vidhan K., 2003. "Testing the pecking order theory of capital structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 67(2), pages 217-248, February.
  9. Baggs, Jennifer & Brander, James A., 2005. "Trade Liberalization, Profitability, and Financial Leverage," Analytical Studies Branch Research Paper Series 2005256e, Statistics Canada, Analytical Studies Branch.
  10. Campello, Murillo, 2003. "Capital structure and product markets interactions: evidence from business cycles," Journal of Financial Economics, Elsevier, Elsevier, vol. 68(3), pages 353-378, June.
  11. Campello, Murillo, 2006. "Debt financing: Does it boost or hurt firm performance in product markets?," Journal of Financial Economics, Elsevier, Elsevier, vol. 82(1), pages 135-172, October.
  12. Ivo Welch, 2004. "Capital Structure and Stock Returns," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(1), pages 106-131, February.
  13. Aggarwal, Raj & Zhao, Xinlei, 2007. "The leverage-value relationship puzzle: An industry effects resolution," Journal of Economics and Business, Elsevier, Elsevier, vol. 59(4), pages 286-297.
  14. 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, Elsevier, vol. 4(3), pages 275-303, September.
  15. 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, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition 132394, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
  16. 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, Board of Governors of the Federal Reserve System (U.S.) 2004-53, Board of Governors of the Federal Reserve System (U.S.).

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