Testing Static Trade-off Against Pecking Order Models of Capital Structure / Lakshmi Shyam-Sunder, Stewart C. Myers.

Format:

Book

Author/Creator:

Shyam-Sunder, Lakshmi.

Contributor:

National Bureau of Economic Research.

Myers, Stewart C.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4722.

NBER working paper series no. w4722

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1994.

Summary:

This paper tests traditional capital structure models against the alternative of a pecking order model of corporate financing. The basic pecking order model, which predicts external debt financing driven by the internal financial deficit, has much greater explanatory power than a static trade-off model which predicts that each firm adjusts toward an optimal debt ratio. We show that the power of some usual tests of the trade-off model is virtually nil. We question whether the available empirical evidence supports the notion of an optimal debt ratio.

Notes:

Print version record

April 1994.