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How Do Firms Make Capital Structure Decisions When Facing Big Events? The Case of Hospital Corporation of America (HCA)

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Abstract

In this paper we investigate the financing behaviour of Hospital Corporation of America (HCA) for the years 1990 to 2013. We study the variations in HCA’s market and book leverage ratios due to 1) mergers and acquisitions, and divestitures that change a firm’s total assets, 2) buybacks, and 3) leveraged buyouts and public o˙erings that change the firm’s ownership. We scrutinize HCA’s market and book leverage ratios’ variations independently as well as relative to each other during the same periods of time. We find that i) HCA’s management team used HCA’s excess cash from divestitures to repurchase $1.7 billion of HCA’s stocks and they also called about $1.35 billion of HCA’s debt, ii) HCA’s market leverage ratio tends to stay in a target leverage zone, and iii) in some years HCA’s management team used the book leverage ratio as a tool to keep the market leverage ratio inside a target leverage zone.

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  • Mona Yaghoubi & Reza Yaghoubi & Graeme Guthrie, 2018. "How Do Firms Make Capital Structure Decisions When Facing Big Events? The Case of Hospital Corporation of America (HCA)," Working Papers in Economics 18/21, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:18/21
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    More about this item

    Keywords

    Capital structure dynamics; share buyback; leveraged buyout; mergers and acquisitions; initial public offerings;
    All these keywords.

    JEL classification:

    • 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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