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Capital structure and stock returns: Evidence from an emerging market with unique financing arrangements

Journal Article


Abstract


  • We investigate capital structure dynamics in a unique financing environment where (1) we avoid the complex tax environments faced by previous studies and where (2) firms rely primarily on bank loans rather than the public debt market.Consistent with recent empirical evidence, we find that stock returns are a first-order determinant of capital structure. Firms show some tendency to rebalance towards their target capital structure. However, the impact of stock returns dominates the effects of rebalancing. We also find that firm's stock returns induce some corporate issuing activity, and managers use issuing activity to counteract some of the mechanistic effects of stock returns.

Authors


  •   Al-Yahyaee, Khamis (external author)
  •   Pham, Toan (external author)
  •   Walter, Terry S.

Publication Date


  • 2013

Citation


  • Al-Yahyaee, K., Pham, T. & Walter, T. (2013). Capital structure and stock returns: Evidence from an emerging market with unique financing arrangements. Applied Financial Economics, 23 (14), 1197-1203.

Scopus Eid


  • 2-s2.0-84912075742

Ro Metadata Url


  • http://ro.uow.edu.au/buspapers/1188

Number Of Pages


  • 6

Start Page


  • 1197

End Page


  • 1203

Volume


  • 23

Issue


  • 14

Abstract


  • We investigate capital structure dynamics in a unique financing environment where (1) we avoid the complex tax environments faced by previous studies and where (2) firms rely primarily on bank loans rather than the public debt market.Consistent with recent empirical evidence, we find that stock returns are a first-order determinant of capital structure. Firms show some tendency to rebalance towards their target capital structure. However, the impact of stock returns dominates the effects of rebalancing. We also find that firm's stock returns induce some corporate issuing activity, and managers use issuing activity to counteract some of the mechanistic effects of stock returns.

Authors


  •   Al-Yahyaee, Khamis (external author)
  •   Pham, Toan (external author)
  •   Walter, Terry S.

Publication Date


  • 2013

Citation


  • Al-Yahyaee, K., Pham, T. & Walter, T. (2013). Capital structure and stock returns: Evidence from an emerging market with unique financing arrangements. Applied Financial Economics, 23 (14), 1197-1203.

Scopus Eid


  • 2-s2.0-84912075742

Ro Metadata Url


  • http://ro.uow.edu.au/buspapers/1188

Number Of Pages


  • 6

Start Page


  • 1197

End Page


  • 1203

Volume


  • 23

Issue


  • 14