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    Sypnosis 3

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    Văn Đức Nguyễn
    This paper examines factors that impact capital structure decisions of American firms between 1950-2003. The authors find that industry median leverage, tangibility, profits, firm size, market-to-book ratio, and expected inflation reliably influence a firm's leverage levels. The paper identifies gaps in existing theories and uses statistical analyses to evaluate which factors are most important. Specifically, it employs descriptive statistics, correlations, and regression models. The results indicate that industry effects, tangible assets, profits, size, growth opportunities, and inflation expectations are consistently associated with corporate leverage.

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    Sypnosis 3

    Uploaded by

    Văn Đức Nguyễn
    31 views2 pages
    This paper examines factors that impact capital structure decisions of American firms between 1950-2003. The authors find that industry median leverage, tangibility, profits, firm size, market-to-book ratio, and expected inflation reliably influence a firm's leverage levels. The paper identifies gaps in existing theories and uses statistical analyses to evaluate which factors are most important. Specifically, it employs descriptive statistics, correlations, and regression models. The results indicate that industry effects, tangible assets, profits, size, growth opportunities, and inflation expectations are consistently associated with corporate leverage.

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    This paper examines factors that impact capital structure decisions of American firms between 1950-2003. The authors find that industry median leverage, tangibility, profits, firm size, market-to-book ratio, and expected inflation reliably influence a firm's leverage levels. The paper identifies gaps in existing theories and uses statistical analyses to evaluate which factors are most important. Specifically, it employs descriptive statistics, correlations, and regression models. The results indicate that industry effects, tangible assets, profits, size, growth opportunities, and inflation expectations are consistently associated with corporate leverage.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    31 views2 pages

    Sypnosis 3

    Uploaded by

    Văn Đức Nguyễn
    This paper examines factors that impact capital structure decisions of American firms between 1950-2003. The authors find that industry median leverage, tangibility, profits, firm size, market-to-book ratio, and expected inflation reliably influence a firm's leverage levels. The paper identifies gaps in existing theories and uses statistical analyses to evaluate which factors are most important. Specifically, it employs descriptive statistics, correlations, and regression models. The results indicate that industry effects, tangible assets, profits, size, growth opportunities, and inflation expectations are consistently associated with corporate leverage.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Name: Nguyễn Văn Đức

    Class: VNP 25

    SYNOPSIS III:

    CAPITAL STRUCTURE DECISIONS: WHICH FACTORS ARE RELIABLY IMPORTANT?


    Murray Z. Frank and Vidhan K. Goyal*

    1. What are the paper research questions?

    Capital structure has been one of the most controversial topic in finance. There has been a large
    amount of research being in attempt to answer problems relating the topic. The paper has
    examined which factors are impartant in impacting the decisions on capital structure of
    American firms between 1950 and 2003. More detail, the work has focused on the effect of these
    factors on the level of corporate leverage which was measured in term of market and book value.
    The authors has found some empirical evidence to answer some questions below:

    a) Are all of these effects equally reliable?


    b) Can we replace some of the core factors with other common factors and still adequately
    control for the known facts?
    c) How important are the excluded factors?
    d) How does this set of core factors relate to the popular theories of leverage?
    2. What are the paper research gaps?
     The pecking order does not directly predict the importance of industry and may need a
    considerable improvement in theory to completely account for the main robust evidence.
     The idea of market timing provides no natural explanation for most of the observed cross-
    sectional capital structure regularities independent of the broader tradeoff framework.
     The main empirical weakness of the tradeoff theory is commonly thought to be the fact
    that more profitable firms generally have lower leverage
    3. Research methodology
    a. Empirical Model?

     Descriptive statistics
     The correlations between the factors and each of the leverage
     The basic model is:
    Li ,t = α + βFi , t−1 +ε i, t .
     The Bayesian Information Criterion
    BIC = -2 x loglikelihood + P x log (N)
     Parameter estimates for the core leverage model
    b. Key variables measurement?
    The core factors for the market leverage are as follows:
     Industry median leverage: Firms in industries in which the median firm has high leverage
    tend to have high leverage.
     Tangibility: Firms that have more tangible assets tend to have higher leverage.
     Profits: Firms that have more profits tend to have lower leverage.
     Firm size: Firms that are large (in terms of assets) tend to have higher leverage.
     Market-to-book assets ratio: Firms that have a high market-to-book ratio tend to have
    lower leverage.
     Expected inflation: When inflation is expected to be high, firms tend to have high
    leverage.
    c. Empirical results and discussion?
     Firms that compete in industries in which the median firm has high leverage tend to have
    high leverage.
     Firms that have a high market-to-book ratio tend to have low levels of leverage.
     Firms that have more tangible assets tend to have more leverage.
     Firms that have more profits tend to have less leverage.
     Larger firms (as measured by book assets) tend to have high leverage.
     When inflation is expected to be high firms tend to have high leverage.
    4. How do you develop the argument?

    The research on capital structure has given some implications for managers in Vietnam
    corporates. The kind of research help managers to form a more sustainable financial structure for
    their companies. Additionally, policy makers also create rules relating to money and financial
    market to improve the sustainability of financial health of companies in the market.

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