Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5069985 | Finance Research Letters | 2006 | 14 Pages |
Abstract
The negative relation between the market-to-book ratio and leverage ratio is one of the most widely documented empirical regularities in the capital structure literature. Most related studies take this negative relation as given and debate about its economic interpretation. We show that firms with higher market-to-book ratios face lower debt financing costs and borrow more. The relation between the market-to-book ratio and leverage ratio is not monotonic and is positive for most firms (more than 88% of COMPUSTAT firms and more than 95% of total market capitalization). The previously documented negative relation is driven by a subset of firms with high market-to-book ratios.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Long Chen, Xinlei Zhao,