Initial Growth Status and the Cross Section of Corporate Capital Structure

Project: Research

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Description

This project tries to tie leverage persistence to initially identified growth status—a concept based on a two-way sort on firm market-to-book and asset tangibility in early IPO years. Unlike year-by-year market-to-book ratios whose variations can give rise to market timing, the initial measures have the least to do with future market timing. As a result, if economic and market mechanisms are able to keep the cross-sectional pattern of firms largely persistent in terms of growth status, strong relations between initial growth status and future capital structures should help support a pre-determined story. This project will propose a growth-status-determined theory of capital structure, test empirically how strong the relations are between the initial growth status and future capital structures, and run a horse race with the market-timing theory. The results of this project will shed light on whether firm nature or exploitable market timing ultimately dictates corporate capital structure.

Detail(s)

Project number7002152
Grant typeSRG
StatusFinished
Effective start/end date1/04/0711/09/09