Essays in empirical corporate finance

This dissertation empirically examines facets of the capital structure decision made by firms. The first chapter extends the implications of the theoretical capital structure literature to the cash holdings decision of small firms. The second chapter examines the determinants of the interest rate exposure choice firms make on their incremental debt issues.; Specifically, the first chapter examines how the frictions of financial distress, information asymmetry, agency costs, and taxes affect the observed cash positions of small firms. The findings are that firms with higher costs of financial distress, as measured by the amount of research and development conducted by the firm, and those with greater leverage, hold more cash. Firms perceiving greater information asymmetries when they need capital in the future hold more cash relative to firms perceiving a lesser degree of information asymmetry. In contrast, firms that have had difficulty in the past raising capital have lower cash holdings, suggesting that these firms may be operating below their optimal cash position. In addition, there is support for managerial ownership having an effect on cash holdings, but that taxes have no impact.; The second chapter examines the determinants of the choice of the interest rate exposure on newly issued corporate debt, testing whether that decision is driven by hedging motivations or by attempts to time the market. Using a combination of the initial exposure of newly issued debt securities and the use of interest rate swaps as the measure of the actual interest rate exposure chosen by firms, the results indicate that firms are attempting to lower their cost of capital, at least in the short term, not to reduce the variation of their cashflow caused by interest rate movements.{09}The key determinant of the ending exposure is the slope of the yield curve.{09}A one standard deviation increase in the spread between 10-year and 1-year bond yields increases the likelihood of having floating rate debt from 31% to 44%. Additionally, as the likelihood of a recession increases, firms are more likely to have fixed rate debt, suggesting that firms are managing macroeconomic instead of firm-specific risk.