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Empirical Capital Structure Research: New Ideas, Recent Evidence, and Methodological Issues

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  • Elsas, Ralf
  • Florysiak, David

Abstract

Even 50 years after Modigliani/Miller’s irrelevance theorem, the basic question of how firms choose their capital structure remains unclear. This survey paper aims at summarizing and discussing corresponding recent developments in empirical capital structure research, which, in our view, are promising for future research. We first present some “stylized facts” on capital structure issues. The focus of the discussion is set on studies taking on the key idea to differentiate between competing theories by testing for firm adjustment behavior following shocks to their capital structure. In addition, we discuss empirical studies examining additional factors that may influence capital structure decisions, but have gained only recently attention in the literature (like corporate ratings or irrational managers). Since some of the available contradictory evidence on capital structure issues might be explained by econometric challenges due to the typical data structure, we also discuss methodological issues like panel data, endogeneity, and partial adjustment models in the capital structure context. Finally, we illustrate the methodological and empirical aspects discussed in this survey by providing corresponding evidence for exchange-listed German companies in the period 1987-2006.

Suggested Citation

  • Elsas, Ralf & Florysiak, David, 2008. "Empirical Capital Structure Research: New Ideas, Recent Evidence, and Methodological Issues," Discussion Papers in Business Administration 4743, University of Munich, Munich School of Management.
  • Handle: RePEc:lmu:msmdpa:4743
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    Cited by:

    1. Ricardo Bebczuk & Arturo Galindo, 2011. "Corporate Leverage, the Cost of Capital,and the Financial Crisis in Latin America," Department of Economics, Working Papers 085, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    2. Ampenberger, Markus & Schmid, Thomas & Achleitner, Ann-Kristin & Kaserer, Christoph, 2009. "Capital structure decisions in family firms: empirical evidence from a bank-based economy," CEFS Working Paper Series 2009-05, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    3. Khaled Hussainey, 2012. "Corporate governance mechanisms and capital structure in UAE," Journal of Applied Accounting Research, Emerald Group Publishing, vol. 13(2), pages 145-160, September.
    4. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, pages 179-205.
    5. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, pages 179-205.
    6. Sabiwalsky, Ralf, 2010. "Nonlinear modelling of target leverage with latent determinant variables -- new evidence on the trade-off theory," Review of Financial Economics, Elsevier, pages 137-150.

    More about this item

    Keywords

    Corporate finance; capital structure determinants; dynamic adjustment models;

    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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