How Stable Are Corporate Capital Structures? International Evidence

63 Pages Posted: 22 Mar 2021

See all articles by Wen He

Wen He

University of Queensland - Business School

Maggie Hu

The Chinese University of Hong Kong

Lin Mi

University of Queensland; Financial Research Network (FIRN)

Jin Yu

Monash University -Department of Banking and Finance

Date Written: March 6, 2021

Abstract

Using a large sample of firms from 43 markets, we find significant time-series variations in firms’ leverage ratios around the world. Industry median leverage ratios and aggregate leverage ratios also change substantially over time. Relative to actual leverage ratios, target leverage ratios estimated from the time-varying target models are much more stable. Variance decomposition shows that leverage instability is largely driven by deviations from the target. A number of firm and market characteristics are related to capital structure instability. We also find evidence consistent with firms using financing activities to adjust their leverage ratios towards the target in global markets.

Keywords: Capital structures; international markets; deviations from the target; corporate finance

JEL Classification: G15; G32

Suggested Citation

He, Wen and Hu, Maggie and Mi, Lin and Yu, Jin, How Stable Are Corporate Capital Structures? International Evidence (March 6, 2021). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3798983 or http://dx.doi.org/10.2139/ssrn.3798983

Wen He

University of Queensland - Business School

Brisbane, Queensland 4072
Australia

Maggie Hu (Contact Author)

The Chinese University of Hong Kong ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong, N.T.
Hong Kong

HOME PAGE: http://sites.google.com/site/maggiehuresearch/research

Lin Mi

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Jin Yu

Monash University -Department of Banking and Finance ( email )

Melbourne
Australia
+61 3 99034590 (Phone)

HOME PAGE: http://sites.google.com/site/jinyufinecon/

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