Determinant Factors of the Capital Structure of a Firm- an Empirical Analysis☆. Author links open overlay Recommended articles. Citing articles (0). To the authors' knowledge, this is the first article to test specific theories of capital structure using a large sample of new technology‐based firms in the USA. Articles. An Empirical Research: The Determining Factors of Capital Structure of Strategic Emerging Industry, Based on Data of Listed Enterprises in China.
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For a risk-averse investor facing no transaction costs, only factor anomalies are relevant.
In the more general case of risk aversion and transaction costs, both tests matter. In extensions, we derive modified versions of the basic tests that net out anomaly execution costs for situations where the investor faces capital constraints, a multi-period portfolio choice problem, or transaction costs that vary across stocks.
Next, we measure the econometric power of the two tests. Time-series factor tests have uniformly lower power than equivalent cross-sectional score tests, with the gap increasing in the in-sample Sharpe ratio of the incumbent factor model.
Capital structure articles period 0 the nation undertakes investments, which improve the production technology. We consider financing of these investments capital structure articles through foreign-currency debt or through fiat money issuance.
This representative agent thus issues claims in period 0 to finance investments against period-2 output. Production takes place in period 1 and requires a real consumption good as an input.
Market Timing and Capital Structure
This real good is purchased from a representative consumer with fiat money held by the representative firm. Thus, money in our model plays the dual role of means of exchange and store of value. Realized output in period 2 is capital structure articles and is sold to the representative consumer after subtracting any foreign-currency debt obligations against money saved by the representative consumer from period 1 to period 2.
We begin our analysis by considering a frictionless economy, and show that an analog of the Modigliani—Miller irrelevance theorem can be established for nations. In an ideal frictionless economy it does not matter how the nation funds its investments.
It obtains the same final expected utility for the representative consumer by financing its investments by printing money or by capital structure articles debt. In addition, under frictionless capital markets the classical quantity theory of money also holds.
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The Modigliani—Miller irrelevance theorem for nations combines in our reduced-form framework the ideas of Ricardian Equivalence Barro, and the Fiscal theory of the price level Leeper, ; Capital structure articles,capital structure articles Woodford, ; Cochrane, As in all corporate finance theories, capital structure for the nation only matters in the presence of friction.
We introduce two types of frictions. First, if the nation relies on foreign-currency financing, we introduce a classic willingness to repay problem.
Second, if the nation relies on equity financing printing capital structure articlesit may incur equity dilution or inflation costs. The more the nation relies on printing money, the more investors worry about future inflation.
The representative consumer of the nation then trades off the dilution costs of money against the expected default cost of capital structure articles to determine an optimal capital structure of the nation.
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Our theory of the capital structure of nations makes an explicit comparison between the benefits of printing money what money buys and the costs higher inflation.
Thus, if the benefits of printing money are substantial e. As Myers and Majluf make clear, it may be optimal for a firm or a nation to issue new equity to fund a new valuable investment even at the cost of diluting ownership, and even if capital structure articles new equity offering results in a stock price drop.
The classic quantity theory of money is a benchmark model capital structure articles monetary economics. We contribute to this theory by describing more explicitly the process by which fiat money enters the economy.
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The stock of capital structure articles money is not increased by dropping money from a helicopter as is often assumed in textbook treatmentsbut capital structure articles purchasing real goods and securities with the newly printed money.
A key determinant of the effects of an increase in the money base on the price level then is the size of the increase in output resulting from the real investment that is financed with the new money issue.
By focusing on what money buys, our theory also emphasizes the tight link between the capital structure articles of inflation and redistribution of wealth. In our model there is no cost of inflation without redistribution.
Capital Structure of Nations* | Review of Finance | Oxford Academic
The cost of inflation if there is any is the transfer of wealth if there is one from existing holders of money to the new holders of money.
As is the case in Myers and Majlufwhere a new equity issue involves no dilution of existing shareholders if it is a rights issue, if a nation issues new money to capital structure articles holders in proportion to their holdings then there is no cost of inflation.
We find that under an equity-financed investment there is no debt overhang if and only if inherited debt is safe, while under a debt-financed investment there capital structure articles no debt overhang if inherited debt is risky.