A Dynamic Model of Optimal Capital Structure

Titman, Sheridan; Tsyplakov, Sergey

doi:10.1093/rof/rfm017

Cited by 280 publications

(78 citation statements)

References 61 publications

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“…In general, our result that stock returns are a primary determinant of capital structure is consistent with the recent work by Cai & Zhang (2006), Chen & Zhao (2005), and Kayhan & Titman (2007). The slow adjustment we find is in line with the evidence reported by Jalilvand & Harris (1984), Fama & French (2002), Baker & Wurgler (2002), Titman & Tsyplakov (2007), and Huang & Ritter (2009).…”

Section: Introductionsupporting

confidence: 93%

“…In a similar vein, Huang & Ritter (2009) find that the effects of debt and equity issues on both book and market leverage last for more than 10 years, which is inconsistent with Leary & Roberts (2005). Titman & Tsyplakov (2007) develop a dynamic model of capital structure and report evidence that firms adjust their capital structure quite slowly. Similarly, Kayhan & Titman (2007) find that stock returns have a strong effect on capital structure and these effects are at partially persistent for at least 10 years.…”

Section: Comparisons With the Current Literaturementioning

confidence: 99%

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The Form of Debt and Stock Returns: Empirical Evidence from Oman

Al‐Yahyaee¹,

Pham²,

Walter³

2013

IJEF

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This paper empirically examines whether stock prices have a significant effect on different forms of debt in a unique environment that is characterized by high leverage and high reliance on bank debt. Furthermore, firms in Oman are taxed at a flat rate and there are no personal income taxes. Our results show that stock returns have a significant effect on all types of debt. Debt ratios seem to move in line with that mechanistically induced by their stock returns. We also find new evidence that firms do take countermeasures to offset changes in their leverage that stem from equity value variations but at a low speed. Adding previously popular determinants of capital structure has only a modest economic impact on capital structure dynamics. When used with bank debt, stock returns continue to dominate other determinants of capital structure.

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Section: Introductionsupporting

confidence: 93%

Section: Comparisons With the Current Literaturementioning

confidence: 99%

The Form of Debt and Stock Returns: Empirical Evidence from Oman

Al‐Yahyaee¹,

Pham²,

Walter³

2013

IJEF

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“…27 27 Recent dynamic models by Titman and Tsyplakov (2007) and Moyen (2007) quantify the cost of debt overhang and postulate that underinvestment remains a problem with both long‐term and short‐term debt and thus cannot be alleviated simply by shortening debt maturity. …”

mentioning

confidence: 99%

Leverage, Debt Maturity and Firm Investment: An Empirical Analysis

Dang

2010

Business Fin & Account

125

186

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In this paper, we examine the potential interactions of corporate financing and investment decisions in the presence of incentive problems. We develop a system-based approach to investigate the effects of growth opportunities on leverage and debt maturity as well as the effects of these financing decisions on firm investment. Using a panel of UK firms between 1996 and 2003, we find that high-growth firms control underinvestment incentives by reducing leverage but not by shortening debt maturity. There is a positive relation between leverage and debt maturity as predicted by the liquidity risk hypothesis. Leverage has a negative effect on firm investment levels, which is consistent with the overinvestment hypothesis regarding the disciplining role of leverage for firms with limited growth opportunities.

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“…To keep the capital structure optimal, we are able to do nothing but update the capital structure dynamically and continuously. For example, if a firm gets into (grows out of) trouble, the firm should retire (issue) debt to dynamically adjust the firm's leverage; see Titman and Tsyplakov () among others. However, in general, such update would incur considerable adjustment costs, and especially, it is nearly impossible under many situations.…”

Section: Introductionmentioning

confidence: 99%

Contingent Capital, Real Options, and Agency Costs

Song

Yang²

2016

Int Rev Finance

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This paper aims to clarify how contingent convertible bond (CoCo) as a debt financing instrument affects a firm's investment policy, agency cost of debt, and capital structure. We consider endogenous and exogenous conversion thresholds, respectively. Under the exogenous case, there is an explicit optimal fraction of equity allocated to CoCo holders upon conversion, such that the agency cost reaches zero. Numerical analysis demonstrates that under an endogenous conversion threshold, CoCo induces overinvestment, a higher leverage, a possible bigger agency cost, and a stronger incentive to increase risk. But if the conversion threshold is exogenously determined, almost the opposite holds true.

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A Dynamic Model of Optimal Capital Structure

Cited by 280 publications

References 61 publications

The Form of Debt and Stock Returns: Empirical Evidence from Oman

The Form of Debt and Stock Returns: Empirical Evidence from Oman

Leverage, Debt Maturity and Firm Investment: An Empirical Analysis

Contingent Capital, Real Options, and Agency Costs

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