Empirical Research On The Variant In Capital Structure

Is capital structure stable or unstable?This question is arguing in the studies for capital structure.Why firms hold a stable capital structure need to be explained by an appropriate theory framework(Frank and Goyal,2008).Lemmon,Roberts and Zender(2008)try to use leverage before IPO to explain stable leverage.Parsons and Titman(2008)and Graham and Leary(2011)argue that firms' fix effect can explain why to prefer stable leverage.However,DeAngelo and Roll(2015)discover that U.S.firms'leverage is not stable during 1926-2008.But DeAngelo and Roll(2015)do not explain why firms choose unstable leverage.Based on DeAngelo and Roll(2015),our paper tries to answer which factor to affect the instability for capital structure.First,our paper review the literatures for capital structure.We systematically introduce the theory for static trade-off theory,pecking order theory,market timing theory and stakeholder theory.Also,we introduce the dynamic capital structure theory which explain capital structure adjustment.Moreover,we summarize the argument that capital structure is stationary or non-stationary in the current reseach.Second,based on the US listed firms during 1961-2015 year,we statistic the variant in capital structure.We find the capital structure is variant.Firstly,based on the average of full-sample,the book leverage is stable,and the market leverage is relatively instable.Secondly,based on leverage range,the variant in leverage is normal behavior.Thirdly,the variant of leverage in long horizon is larger than in short horizon.Fourthly,there is different characteristics of leverage variant in different industry.Third,in prior literature,researchers consistently focus on the level of leverage or the target leverage adjustment.However,few literatures try to explain whether firms' leverage is stable or instable.This paper further concerns the reason as to which factors affect the variant in leverage for listed U.S.firms during 1962 to 2015.Our statistics support the variant of leverage is more and more from short-term to long-term horizon.Capital expenditure and change of debt encourage the variation in leverage,whereas growth,tangibility,profit,dividend-paying and financial deficit reduce the variation of leverage.Meanwhile,we also confirm leverage' variant is determined by microeconomic factors rather than macroeconomic factors.Fourth,we also investigate whether the peers affect the variant in firms' leverage.Based on Leary and Roberts(2014),we find that there is the peer effect in the variant of leverage.Meanwhile,in terms of industry level,the fluctuation of capital structure strong industry peer effect as follows:the largest assets,high profitability,low growth of industry,a relatively young industry,larger fixed assets and less competitive industry.Secondly,in terms of the corporate level,firms which prefer to mimic the variant in leverage have characteristics,as following:larger size,weak profitability,weak growth of sale,high growth,younger,less R&D expenditure,payout,larger fix asset and low market share.Fifth,we investigate whether overconfident CEOs prefer to the variant or invariant in leverage.In the literatures,CEOs affect the decision for finance policy,for example Huang,Tan and Faff(2016).There is the bias for firms' value or risk between CEO and outsiders,so that CEOs always think that the outside financing is cost.Thus,we also concern that overconfident CEOs hold lower variant in leverage than non-overconfident CEOs,suggesting that overconfident CEOs more prefer to internal financing.Moreover,because long-term debts cause more information asymmetric between overconfident CEOs and creditor,if overconfident CEOs expect to finance from external,they more frequently borrow short-term debts than long-term debts,so that we can observe that overconfident CEOs hold more stable long-term leverage.Also,we investigate that when actual leverage is higher than target-leverage,overconfident CEOs will rise the variant in leverage,suggesting that overconfident CEOs is struggle to following with target capital structure,so that the information asymmetric between CEOs and creditors can lower.Meanwhile,when actual leverage is lower than target-leverage,overconfident CEOs still prefer to the stability in leverageSixth,conclusion,enlightenment and forward.Firstly,we conclude our empirical research.Secondly,from the angle for the variant in capital structure,we provide enlightenment for Chinese companies and regulators.Thirdly,the research for the variant in capital structure provide the forward.