IDEAS home Printed from
   My bibliography  Save this paper

The Debt-Equity Choice: An Empirical Analysis


  • Tim Opler

    (Ohio State University, Fisher College of Business)

  • Sheridan Titman

    (Boston College, Finance Department)


This paper compares U.S. firms which issued equity between 1976 and 1993 to those which issued debt. with an emphasis on determining the relative importance. Our results suggest that both the static tradeoff and pecking order explanations of capital structure choice theories are useful in explaining firm behavior. Consistent with the static-tradeoff story, we find that firms which have less debt than predicted by a cross-sectional predictive model of the debt ratio are the most likely to issue debt. Moreover, profitable firms which can enjoy significant gains from leverage are the most likely to issue debt. At the same time, we confirm previous studies which show that firms are much more likely to issue equity after experiencing a rise in their share price. This phenomenon can be rationalized with an asymmetric information/pecking order story. Because there are other potential explanations for the share price rise/equity issue relation, we stratify our analyses by proxies for asymmetry of information between insiders and outsiders including firm size, extent of analyst following and the level of dividend payout. Surprisingly, the impact of share prices rises on the incidence of equity issues is largest among firms with low informational asymmetry. This is not consistent with the informational asymmetry explanation of why firms issue equity. We thank Michael Barclay, Steve Kaplan, Craig Lewis, David Mauer, Bob McDonald, Stewart Myers and participants at the 1994 NBER Autumn Conference on Corporate Finance for helpful discussions and comments. The first author benefitted from research support from the Charles A. Dice Center for Financial Research of Ohio State University.

Suggested Citation

  • Tim Opler & Sheridan Titman, 1994. "The Debt-Equity Choice: An Empirical Analysis," Corporate Finance & Organizations _003, Ohio State University.
  • Handle: RePEc:wop:ohstfi:_003

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Schmukler, Sergio L. & Vesperoni, Esteban, 2006. "Financial globalization and debt maturity in emerging economies," Journal of Development Economics, Elsevier, vol. 79(1), pages 183-207, February.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wop:ohstfi:_003. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.