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The Joint Determinants of Capital Structure and Stock Rate of Return: A LISREL Model Approach

In: HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING

Author

Listed:
  • Hong-Yi Chen
  • Cheng Few Lee
  • Tzu Tai

Abstract

We develop a simultaneous determination model of capital structure and stock returns. Specifically, we incorporate the managerial investment autonomy theory into the structural equation modeling with confirmatory factor analysis to jointly determine the capital structure and stock return. Besides attributes introduced in previous studies, we introduce indicators affecting a firm’s financing decision, such as managerial entrenchment, macro-economic factors, government financial policy, and pricing factors. Empirical results show that stock returns, asset structure, growth, industry classification, uniqueness, volatility, financial rating, profitability, government financial policy, and managerial entrenchment are major factors of the capital structure.

Suggested Citation

  • Hong-Yi Chen & Cheng Few Lee & Tzu Tai, 2020. "The Joint Determinants of Capital Structure and Stock Rate of Return: A LISREL Model Approach," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 35, pages 1345-1397, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811202391_0035
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    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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