The Debt-Equity Choice

By Armen Hovakimian, T. Opler, Sheridan Titman. Journal of Financial and Quantitative Analysis, 2001

2,019 citations recorded by the source corpus.

Abstract When firms adjust their capital structures, they tend to move toward a target debt ratio that is consistent with theories based on tradeoffs between the costs and benefits of debt. In contrast to previous empirical work, out tests explicitly account for the fact that firms may face impediments to movements toward their target ratio, and that the target ratio may change over time as the firm's profitability and stock price change. A separate analysis of the size of the issue and repurchase transactions suggests that the deviation between the actual and the target ratios plays a more important role in the repurchase decision than in the issuance decision.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/11357d895ab1d6047c59ecef4fe9ff3f152ba973

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Citations in the corpus

What Determines the Financing Decision in Corporate Takeovers: Cost of Capital, Agency Problems, or the Means of Payment? (2008, positive): “As tangible assets can represent collateral for creditors, we expect firms with a higher percentage of tangibles to attract debt financing more easily (Myers, 1977; Hovakimian et al., 2001).”
Market timing and the debt-equity choice (2008, methodology): “We rely heavily on the work of Flannery and Rangan (2006) who in turn build upon the work of Rajan and Zingales (1995), Hovakimian (2003), Hovakimian, Opler, and Titman (2001), and Fama and French (2002).”
Why Do Public Firms Issue Private and Public Securities? (2012, neutral): “Hovakimian, Opler and Titman (2001) also find that trade-off variables, and in particular profitability, impact security issuance using Compustat data.”
Capital structure and law around the world (2011, neutral): “…the other hand, was an attempt by the owners to misprice those firms excessively, concluding that the latter alternative was the most plausible; and Hovakimian et al. (2001), who suggested that stock prices have an important role on the firm’s financing choice, issuing (repurchasing) equity and…”
Regression analysis of proportions in finance with self selection (2008, result): “Altogether, these results also raise doubts about studies, like Hovakimian, Opler, and Titman (2001) or Flannery and Rangan (2006) that examine the effects of deviations from a firm's “target” capital structure on its issuance of debt or equity since they clearly mis-estimate the “target” capital ”
Financial Expert CEOs: CEO’s Work Experience and Firm’s Financial Policies (2014, neutral): “…research and development (R&D) as a proxy for intangibility, capital expenditures, a dummy variable for dividend-paying firms (see, for instance, Hovakimian, Opler, and Titman, 2001; or Lemmon, Roberts, and Zender, 2008), profitability measured by return on assets (ROA), and the tangibility of…”
Do Stock Prices Influence Corporate Decisions? Evidence from the Technology Bubble (2013, positive): “For instance, while proponents of the trade-o¤ theory enter a rm s leverage in the issuance equation directly (e.g., Hovakimian et al. (2001)), proponents of the pecking order theory do it indirectly when they enter interest payments (debt service) in nancing de cits (e.g., Shyam-Sunder and Myers…”
Trade-Off and Pecking Order Theories of Debt (2007, background): “Kayhan and Titman (2007) also show that firms behave as if they have a target debt ratio.”
The choice among bank debt, non-bank private debt, and public debt: evidence from new corporate borrowings☆ (2003, positive): “2A similar incremental approach is used by Hovakimian et al. (2001), who study the debt–equity choice; by Jung et al. (1995), who examine external financing decisions; and by Guedes and Opler (1996), who study the determinants of debt maturity.”
The relationship between product market competition and capital structure in Chinese listed firms (2011, neutral): “4 See Antoniou et al. (2008), Hovakimian, Opler, and Titman (2001), and Miguel and Pindado (2001), among others, for a discussion of target capital structure.”
Corporate Governance and the Dynamics of Capital Structure: New Evidence (2014, methodology): “The approach used by Hovakimian et al. (2001), De Miguel and Pindado (2001), Fama and French (2002), and Kayhan and Titman (2007) estimates the model in two steps: estimate the target leverage ratio, and then conduct a partial adjustment regression.”