[HTML][HTML] Asymmetries in the Firm's use of debt to changing market values
Journal of Corporate Finance, 2018•Elsevier
Using a sample of US firms over the period, 1984 to 2013, this study examines the relation
between market and book leverage ratios. Unlike Welch (2004) who contends that changes
in market leverage do not induce adjustments in book leverage, we find an asymmetric
effect. That is, firms adjust their book leverage only when the changes in market leverage
are due to increases in equity values. No adjustment is observed when firm equity values
decrease. Our results are consistent with Myers (1977) and Barclay et al.(2006) who argue …
between market and book leverage ratios. Unlike Welch (2004) who contends that changes
in market leverage do not induce adjustments in book leverage, we find an asymmetric
effect. That is, firms adjust their book leverage only when the changes in market leverage
are due to increases in equity values. No adjustment is observed when firm equity values
decrease. Our results are consistent with Myers (1977) and Barclay et al.(2006) who argue …
Abstract
Using a sample of U.S. firms over the period, 1984 to 2013, this study examines the relation between market and book leverage ratios. Unlike Welch (2004) who contends that changes in market leverage do not induce adjustments in book leverage, we find an asymmetric effect. That is, firms adjust their book leverage only when the changes in market leverage are due to increases in equity values. No adjustment is observed when firm equity values decrease. Our results are consistent with Myers (1977) and Barclay et al. (2006) who argue that optimal debt levels decrease with corporate growth opportunities.
Elsevier