Capital Structure Decisions: Which Factors are Reliably Important?

By Murray Z. Frank, Vidhan K. Goyal. 2009

2,759 citations recorded by the source corpus.

"This paper examines the relative importance of many factors in the capital structure decisions of publicly traded American firms from 1950 to 2003. The most reliable factors for explaining market leverage are: median industry leverage (p effect on leverage), market-to-book assets ratio ( - ), tangibility (p), profits ( - ), log of assets (p), and expected inflation (p). In addition, we find that dividend-paying firms tend to have lower leverage. When considering book leverage, somewhat similar effects are found. However, for book leverage, the impact of firm size, the market-to-book ratio, and the effect of inflation are not reliable. The empirical evidence seems reasonably consistent with some versions of the trade-off theory of capital structure." Copyright (c) 2009 Financial Management Association International..

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/dd44c41c4b47e8e2f7769c70731b278d93dde1ff

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Strategy and Management

Citations in the corpus

Carbon risk and corporate capital structure (2020, neutral): “First, according to the Climate Change Review Update 2011, Australia is the most polluting nation in the Organisation for Economic Co-operation and Development (OECD) group based on GHG emissions per capita (Garnaut (2011)). Second, following the KPR in 2007, Australian policy makers have enacted se”
What do we know about the capital structure of small firms? (2012, neutral): “A recent study, based on U.S. firms (Frank and Goyal 2009), has found that firm characteristics explain approximately 30 % of within-country firm leverage variation.”
Firm Age, Corporate Governance, and Capital Structure Choices (2018, neutral): “9 We conjecture that this measure better captures market expectations about future inflation, which Frank and Goyal (2009) find to be a significant influence on corporate capital structure decisions.”
Optimal Priority Structure, Capital Structure, and Investment (2012, neutral): “(2006), and Frank and Goyal (2009) find that book leverage is positively related to the market-”
Cash flows and leverage adjustments (2016, background): “The elements that drive this decision remain elusive in spite of a lot of existing studies (Frank & Goyal, 2009).”
The Cost of Debt (2010, neutral): “Table V summarizes the effect of the control variables on the cost of debt function, and compares these coefficients to standard capital structure results (as presented in Frank and Goyal (2009) and elsewhere).”
From Finance to Marketing: The Impact of Financial Leverage on Customer Satisfaction (2015, background): “Frank and Goyal (2009) find that the main determinants of cross-sectional variations in firm leverage are industry median leverage, tangibility of assets, firm size, and profit margin.”