Advanced

The Effect of Firm-Specific Variables and Macroeconomic Condition on Capital Structure-Evidence of Non-Linear Behaviors

You, Mei-Ti and He, Kuang (2011)
Department of Business Administration
Abstract
This paper models the dynamics of capital structure listed on the NYSE and NASDAQ during 1995 to 2010. The subsamples classified by given leverage level and specified periods of time are tested. The main contribution is that macroeconomic conditions and firm characteristics are incorporated regressed for non-linearity test. We provide the evidence of non-linear patterns among low leverage and high leverage firms. These two groups are found to have contrast behaviors toward stock market, one of macroeconomic variables. With more financial flexibilities, the sensitivities of firm-specific variables are found statistically insignificant for low leverage firms. Besides, firm-specific variables drop sensitivities for high leverage firms in... (More)
This paper models the dynamics of capital structure listed on the NYSE and NASDAQ during 1995 to 2010. The subsamples classified by given leverage level and specified periods of time are tested. The main contribution is that macroeconomic conditions and firm characteristics are incorporated regressed for non-linearity test. We provide the evidence of non-linear patterns among low leverage and high leverage firms. These two groups are found to have contrast behaviors toward stock market, one of macroeconomic variables. With more financial flexibilities, the sensitivities of firm-specific variables are found statistically insignificant for low leverage firms. Besides, firm-specific variables drop sensitivities for high leverage firms in economic downturns. Our results support the hypothesis that low leverage firms have higher agency cost between managers and shareholders, and the fact that expected bankruptcy cost is lower in booms. (Less)
Please use this url to cite or link to this publication:
author
You, Mei-Ti and He, Kuang
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Capital structure, Non-linear behaviors, Business cycles, Management of enterprises, Företagsledning, management
language
Swedish
id
1982355
date added to LUP
2011-06-03
date last changed
2012-04-02 18:56:42
@misc{1982355,
  abstract     = {This paper models the dynamics of capital structure listed on the NYSE and NASDAQ during 1995 to 2010. The subsamples classified by given leverage level and specified periods of time are tested. The main contribution is that macroeconomic conditions and firm characteristics are incorporated regressed for non-linearity test. We provide the evidence of non-linear patterns among low leverage and high leverage firms. These two groups are found to have contrast behaviors toward stock market, one of macroeconomic variables. With more financial flexibilities, the sensitivities of firm-specific variables are found statistically insignificant for low leverage firms. Besides, firm-specific variables drop sensitivities for high leverage firms in economic downturns. Our results support the hypothesis that low leverage firms have higher agency cost between managers and shareholders, and the fact that expected bankruptcy cost is lower in booms.},
  author       = {You, Mei-Ti and He, Kuang},
  keyword      = {Capital structure,Non-linear behaviors,Business cycles,Management of enterprises,Företagsledning, management},
  language     = {swe},
  note         = {Student Paper},
  title        = {The Effect of Firm-Specific Variables and Macroeconomic Condition on Capital Structure-Evidence of Non-Linear Behaviors},
  year         = {2011},
}