NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Columbus' Egg: The Real Determinant of Capital Structure

Ivo Welch

NBER Working Paper No. 8782
Issued in February 2002
NBER Program(s):   CF

This paper shows that managers fail to readjust their capital structure in response to external stock returns. Thus, the typical firm's capital structure is not caused by attempts to time the market, by attempts to minimize taxes or bankruptcy costs, or by any other attempts at firm-value maximization. Instead, capital structure is almost entirely determined by lagged stock returns (which, when applied to ancient equity values, predict current equity value and with it debt equity ratios). Consequently, one should conclude that capital structure is determined primarily by external stock market influences, and not by internal corporate optimizing decisions.

download in pdf format
   (270 K)

email paper

This paper is available as PDF (270 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8782

Published: Welch, Ivo. "Capital Structure and Stock Returns." Journal of Political Economy 112-1 (February 2004): 106-131.

Users who downloaded this paper also downloaded these:
Myers and Majluf w1396 Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have
Rauh and Sufi w14488 Capital Structure and Debt Structure
Shyam-Sunder and Myers w4722 Testing Static Trade-off Against Pecking Order Models of Capital Structure
Myers w1393 Capital Structure Puzzle
Robb and Robinson w16272 The Capital Structure Decisions of New Firms
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us