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Proactive Capital Structure Adjustments: Evidence from Corporate Filings

Published online by Cambridge University Press:  21 December 2020

Arthur Korteweg Open the ORCID record for Arthur Korteweg [Opens in a new window] ,
Michael Schwert  and
Ilya A. Strebulaev
Arthur Korteweg
Affiliation:
University of Southern California Marshall School of Businesskorteweg@marshall.usc.edu
Michael Schwert*
Affiliation:
The Wharton School of the University of Pennsylvania
Ilya A. Strebulaev
Affiliation:
Stanford University Graduate School of Business and National Bureau of Economic Researchistrebulaev@stanford.edu
*
schwert@wharton.upenn.edu (corresponding author)
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Abstract

We use new hand-collected data from corporate filings to study the drivers of corporate capital structure adjustment. Classifying firms by their adjustment frequencies, we reveal previously unknown patterns in their reasons for financing and the financial instruments used. Some are consistent with existing theory, whereas others are understudied. Many leverage changes are outside of the firm’s control (e.g., executive option exercise) or incur negligible adjustment costs (e.g., credit-line usage). This implies a lower frequency of proactive leverage adjustments than indicated by prior research using accounting data, suggesting that costs of adjustment are higher, or the benefits lower, than previously thought.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 1 , February 2022 , pp. 31 - 66
Copyright
© The Author(s), 2020. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank Dasha Anosova for excellent research assistance and Harry DeAngelo, John Graham (the referee), Jarrad Harford (the editor), Mark Leary, Michael Roberts, Bill Schwert, and seminar participants at Stanford University Graduate School of Business, the University of Colorado Boulder, and the 2019 Society for Financial Studies (SFS) Cavalcade for helpful comments and suggestions.

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