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Optimal Capital Structure and Industry Dynamics

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Author Info
Jianjun Miao (Boston University)

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Abstract

This paper presents an equilibrium model of industry dynamics and capital structure decisions. The unique stationary equilibrium is derived in closed-form. The analysis reveals that the interaction between capital structure and production decisions influences the stationary distribution of surviving firms and their survival probabilities. Under reasonably calibrated parameter values, the model predicts a low industry average leverage ratio which is in line with that observed in practice. Comparative static analysis demonstrates that the model can generate the relation between capital structure and firms¡¯ entry, exit and production decisions documented in the evidence. The model also provides a number of new predictions regarding industry dynamics and capital structure.

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Paper provided by EconWPA in its series Industrial Organization with number 0310001.

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Length: 345 pages
Date of creation: 04 Oct 2003
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Handle: RePEc:wpa:wuwpio:0310001

Note: Type of Document - ; pages: 345,395,4323247
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Web page: http://129.3.20.41

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Keywords: subliminal extant Smith economagic gmm;

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Francois Gourio & Jianjun Miao, 2006. "Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform," Boston University - Department of Economics - Working Papers Series WP2006-053, Boston University - Department of Economics. [Downloadable!]
  2. Gryglewicz, Sebastian & Huisman, K.J.M. & Kort, Peter M., 2006. "Finite project life and uncertainty effects on investment," Discussion Paper 124, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  3. Michele Moretto & Paolo M. Panteghini, 2007. "Preemption, Start-Up Decisions and the Firms' Capital Structure," Economics Bulletin, Economics Bulletin, vol. 4(39), pages 1-14. [Downloadable!]
    Other versions:
  4. Jean-Marc Bourgeon & Georges Dionne, 2007. "On Debt Service and Renegotiation when Debt-holders Are More Strategic," Cahiers de recherche 0729, CIRPEE. [Downloadable!]
  5. Francois Gourio & Jianjun Miao, 2006. "Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-160, Boston University - Department of Economics. [Downloadable!]
  6. Francois Gourio & Jianjun Miao, 2009. "Firm Heterogeneity and the Long-run Effects of Dividend Tax Reform," NBER Working Papers 15044, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Cristina Arellano & Yan Bai & Jing Zhang, 2007. "Contract Enforcement and Firms'd5 FinancingContract Enforcement and Firms'd5 Financing," Working Papers 573, Research Seminar in International Economics, University of Michigan. [Downloadable!]
  8. Hong Liu & Jianjun Miao, 2006. "Managerial Preferences, Corporate Governance, and Financial Structure," Boston University - Department of Economics - Working Papers Series WP2006-020, Boston University - Department of Economics. [Downloadable!]
  9. Michele Moretto, 2007. "Competition and Irreversible Investments under Uncertainty," "Marco Fanno" Working Papers 0058, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
  10. Mohitosh Kejriwal & Pierre Perron, 2007. "Data Dependent Rules for the Selection of the Number of Leads and Lags in the Dynamic OLS Cointegrating Regression," Boston University - Department of Economics - Working Papers Series WP2007-018, Boston University - Department of Economics. [Downloadable!]
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  11. Hui Chen & Jianjun Miao & Neng Wang, 2009. "Entrepreneurial Finance and Non-diversifiable Risk," NBER Working Papers 14848, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Dirk Hackbarth & Junjian Miao & Erwan Morellec, 2005. "Capital Structure, Credit Risk, and Macroeconomic Conditions," Boston University - Department of Economics - Macroeconomics Working Papers Series WP2005-005, Boston University - Department of Economics. [Downloadable!]
    Other versions:
  13. François Gourio & Jianjun Miao, 2008. "Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform," Boston University - Department of Economics - Working Papers Series wp2008-002, Boston University - Department of Economics. [Downloadable!]
  14. Cristina Arellano & Yan Bai & Jing Zhang, 2009. "Firm dynamics and financial development," Staff Report 392, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  15. Jianjun Miao & Neng Wang, 2004. "Investment, Hedging, and Consumption Smoothing," Finance 0407014, EconWPA. [Downloadable!]
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