Do Firms Rebalance their Capital Structure ?

  title={Do Firms Rebalance their Capital Structure ?},
  author={Mark Leary},
We empirically examine the trade-off theory of capital structure, allowing for infrequent adjustment. After showing that the behavior of financing decisions (security issuances and retirements) is consistent with direct evidence on external financing costs, we use a dynamic duration model to show that firms behave as though adhering to a dynamic trade-off policy in which they actively rebalance their leverage to stay within an optimal range. Financing decisions are sensitive to both the level… CONTINUE READING
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