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Capital Structure Decisions: Which Factors Are Reliably Important ?

Authors Frank, Murray Z.
Goyal, Vidhan K. View this author's profile
Issue Date 2009
Source Financial Management , v. 38, (1), 2009, SPR, p. 1-37
Summary 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 (+ effect on leverage), market-to-book assets ratio (-), tangibility (+), profits (-), log of assets (+), and expected inflation (+). 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.
ISSN 0046-3892
Rights This is a preprint article published in Financial Management © copyright 2009 Wiley-Blackwell. The original journal article is posted on the journal's web site at
Language English
Format Article
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