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Is There an Optimal Industry Financial Structure?

  • Peter MacKay
  • Gordon M. Phillips

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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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
Note: CF PE
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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