Asymmetries in the Firm's use of debt to changing market values

Stephen P. Ferris, Jan Hanousek, Anastasiya Shamshur, Jiri Tresl
2018 Journal of Corporate Finance  
Using a sample of U.S. firms over the period, 1984 to 2013, this study examines the relation between market and book leverage ratios. Unlike Welch (2004) who contends that changes in market leverage do not induce adjustments in book leverage, we find an asymmetric effect. That is, firms adjust their book leverage only when the changes in market leverage are due to increases in equity values. No adjustment is observed when firm equity values decrease. Our results are consistent with Myers (1977)
more » ... and Barclay, Morellec and Smith (2006) who argue that optimal debt levels decrease with corporate growth opportunities.
doi:10.1016/j.jcorpfin.2017.12.006 fatcat:4uqfpmlmgbelxe6zp73jhxdbd4