國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
27
t-test of the difference in the magnitude of the coefficients on EPS for low and high G-index (E-index) subsamples: the coefficient on EPS based on the subsample in firms with high G-index (E-index) is significantly larger than that based on the subsample in firms with low G-index (E-index). The results provide weak evidence that EPS have more significant resulting effects on capital structures in firms with higher strength of corporate governance (lower G-Index or E-index), which to some extent supports the Stein (1989) hypothesis and Ohrn’s (2014) findings that corporate governance mechanisms encourage managers to focus on current financial statement earnings.
Overall, the results reinforce my argument that EPS influences leverage primarily through the actions that managers take to influence EPS. Thus the level of equity incentives reinforce the impact of EPS on capital structures because managers with high equity incentives are more likely to sell shares in the future and this motivates these managers to engage in EPS management to increase the value of the shares to be sold (Cheng and Warfield, 2005). The impact of corporate governance on the relationship between EPS and leverage is unclear; I find only limited evidence in support of the hypothesis that corporate governance mechanisms encourage managers to focus on current financial statement earnings.
6. Conclusion
A variety of evidence suggests that EPS affects decisions regarding the choice between debt and equity, and whether to repurchase company stock. This evidence implicitly suggests the short-term and temporary effect of EPS on capital structures.
This study, however, has explicitly shown not only the short-term effect but also the long-term and persistent effect of EPS on corporate capital structures. I find that high-leverage firms tend to be those that raised funds through issuing debt or even
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
28
buying back outstanding shares when their EPS was low. The fluctuations in EPS have a significant effect on capital structures and this effect persists for at least a decade.
In addition, I find that the negative impact of EPS on leverage becomes much stronger after the passage of SOX, in which period managers engage in more actions of debt-equity choices or stock repurchases with the sole purpose of manipulating EPS. I also identify two economic mechanisms through EPS negatively influences capital structures. I find that the negative impact of EPS on capital structures is only significant for firms with high equity incentives for managers. I also find limited evidence that EPS has more significant resulting effects on the capital structure in firms with stronger corporate governance.
These results are hard to explain through traditional theories of capital structure.
The most realistic explanation for the results is that capital structure is largely the cumulative outcome of managers’ attempts to manage the reported EPS, whether by debt-equity choices or stock repurchases. In this story, the influence of EPS on the leverage ratio is not rebalanced away, but instead accumulates over time and affects the capital structure outcome.
‧
Appendix A details the variable construction for analysis. Compustat variable names are denoted by their Xpressfeed pneumonic in bold. Time periods are denoted by (t) or (t - 1) suffixes.
Dependent variables
Book Leverage Short-term debt plus long-term debt divided by total assets.
[(dltt + dlc)/ at]
Market Leverage Short-term debt plus long-term debt divided by total assets minus book equity plus market equity [(dltt + dlc)/( at – seq + prcc_f * csho)]
Independent variables
EPSPX Basic earnings per share [epspx]
EPSFX Diluted earnings per share [epsfx]
MB ratio Market value of assets (total assets minus book equity plus market equity) divided by total assets [(at – seq + prcc_f * csho)/at]
Size Natural logarithm of total assets [log(at)]
Fixed Asset Property, plant, and equipment divided by total assets [ppent/at]
R&D Research and development expense divided by firm size [xrd/log(at)]
Cash Flow (CF) Operating income before extraordinary items plus depreciation divided by total assets [(ib + dp)/at]
Std (CF) Cash Flow Volatility is computed each year as the historical standard deviation of Cash Flow, requiring at least 3 years of data.
Median of industry leverage (Med. of ind.
lev)
Median of industry leverage is computed each year as the median leverage for a particular industry, which is defined by three-digit SIC code.
Profitability Operating income before depreciation divided by total assets [oibdp/at]
Net external financing
Net Equity Issuances Sale of common and preferred stock minus purchase of common and preferred stock divided by total assets [(sstk(t) − prstkc(t))/at(t − 1)]
‧
Net Debt Issuances The change in total debt divided by total assets [((dltt(t) + dlc(t)) − (dltt(t − 1) + dlc(t − 1)))/at(t − 1)]
Managers’ equity incentives
SHR_OWN Share ownership by the CEO of a firm [SHROWN_EXCL_OPTS/(SHRSOUT)]
OPT_OWN Unexercised option ownership by the CEO of a firm [(OPT_UNEX_EXER_NUM+OPT_UNEX_UNEXER_
NUM)/(SHRSOUT)]
OPT_EXER_OWN Unexercised exercisable option ownership by the CEO of a firm [OPT_UNEX_EXER_NUM/SHROUT/SHRSOUT]
OPT_ITM_V Estimated value of in-the-money unexercised unvested option ownership by the CEO of a firm
[OPT_UNEX_UNEXER_EST_VAL/(SHROUT*SPRC)]
Corporate government measures
G-Index The governance index of Gompers et al. (2003) E-Index The entrenchment index of Bebchuck et al. (2009)
Appendix B: The expected relationship between the control variables and corporate capital structures
My empirical model of capital structure is a generalization of that used throughout the empirical capital structure literature, and includes seven control variables that were found to be correlated to leverage (e.g., Rajan and Zingales, 1995;
Baker and Wurgler, 2002; Lemmon et al., 2008; Frank and Goyal, 2009; Leary and Roberts 2014). The control variables and the expected relation between the control variables and leverage are:
(1) Market-to-book ratio (MB ratio): Baker and Wurgler (2002) show that firms are more likely to issue equity when their market values are high and to repurchase equity when their market values are low. In addition, a firm with high market-to-book ratio of assets which is generally taken as a sigh of more attractive future growth options, suggested by Myers’ (1984) pecking order theory, tends to protect by limiting its
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
31
leverage. From these various perspectives, I expect there is a negative relationship between market-to-book ratio of assets and firm’s leverage.
(2) Firm size (Size): Previous researches find that leverage is positively correlated with firm size (e.g., Titman and Wessels, 1988; Rajan and Zingales, 1995; Fama and French, 2002). A number of intuitive explanations can be put forward to account for this stylized fact like higher transparency, lower operating volatility, and cheaper access to public debt market for larger firms allowing them much easier to issue debt.
(3) Fixed asset proportion (Fixed asset): In the presence of contracting frictions, fixed assets which are with high tangibility are more desirable from the point of view of creditors because it allows creditors to more easily repossess a firm’s assets (see Shleifer and Vishny, 1992; Campello and Giambona, 2013). Referring to the theory suggestions and previous empirical results that tangibility increases borrowing capacity, I expected that firm’s leverage will increase with fixed asset proportion.
(4) R&D expenses (R&D): The theoretical documentations suggest that firms with more R&D expenses will prefer to have more equity based on the economic characteristics of intangible investments, mainly risk and uncertainty of future benefits, which are then confirmed in most part of the empirical research results like Bhagat and Welch (1995). I therefore expect an inverse relation between R&D expenses and debt ratios.
(5) Industry median debt ratio (Med. of ind. lev.): It is widely held that industry average leverage ratios are an economically important determinant of firms’ capital structures (Bradley, Jarrell, and Kim, 1984; Welch, 2004; MacKay and Phillips, 2005, and Frank and Goyal, 2009). Furthermore, recent empirical work by Leary and Roberts (2014) show evidence for a complementary explanation of the importance of
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
32
industry leverage, namely that firms are directly influenced by the financing choices of their peers. I therefore include the industry median debt ratio in the regression to account for the industry influence on firms’ leverage.Three-digit SIC codes are used to identify each industry.
(6) Cash flow volatility (Std (CF)): Firms with higher cash flow volatility often face greater uncertainty, and thus increase in the probability that a future state of the world will take place in which a firm’s cash flows are insufficient to service its debt obligations (Bradley et al., 1984). Bradley et al., among others, show that the relationship between the debt ratio and volatility is negative.
(7) Profitability: Under the trade-off theory, more profitable firms face lower expected costs of financial distress. They also use more debt to shield taxable income and to control the agency cost of free cash flow (Jensen, 1986). Thus, increases (decreases) in profitability cause firm leverage to increase (decrease) under the trade-off theory.
Under the pecking order theory, holding investment fixed, more profitable firms keep the level of internal capital higher, and thus have less need to finance new projects with external debt capital. Therefore, given investment outlays, leverage is lower for more profitable firms.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
33
Reference
Almeida, Heitor, Vyacheslav Fos, and Mathias Kronlund, 2015, The real effects of share repurchases, Forthcoming, Journal of Financial Economics.
Bartov, Eli, and Partha Mohanram, 2004, Private information, earnings manipulations, and executive stock-option exercises, The Accounting Review 79, 889-920.
Baker, Malcolm, and Jeffrey Wurgler, 2002, Market timing and capital structure, Journal of Finance 57, 1-32.
Bebchuk, Lucian, Alma Cohen, and Allen Ferrell, 2009, What matters in corporate governance? Review of Financial Studies 22, 783-827.
Bens, Daniel A., Venky Nagar, Douglas J. Skinner, and M. H. Franco Wong, 2003, Employee stock options, EPS dilution, and stock repurchases, Journal of Accounting and Economics 36, 51-90.
Bergstresser, Daniel, and Thomas Philippon, 2006, CEO incentives and earnings management, Journal of Financial Economics 80, 511-529.
Bhagat, Sanjai, and Ivo Welch, 1995, Corporate research and development investments international comparisons, Journal of Accounting and Economics 19, 443-470.
Bradley, Michael, Gregg A. Jarrell, and E. Han Kim, 1984, On the existence of an optimal capital structure: Theory and evidence, Journal of Finance 39, 857-878.
Brav, Alon, John R. Graham, Campbell R. Harvey, and Roni Michaely, 2005, Payout policy in the 21st century, Journal of Financial Economics 77, 483-527.
Brealey, Richard A., and Stewart C. Myers, 1996, Principles of Corporate Finance, New York, NY: McGraw-Hill.
Burgstahler, David, and Ilia Dichev, 1997, Earnings management to avoid earnings decreases and losses, Journal of Accounting and Economics 24, 99-126.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
34
Campello, Murillo, and Erasmo Giambona, 2013, Real assets and capital structure, Journal of Financial and Quantitative Analysis 48, 1333-1370.
Cheng, Qiang, and Terry D. Warfield, 2005, Equity incentives and earnings management, The Accounting Review 80, 441-476.
Cohen, Daniel A., Aiyesha Dey, and Thomas Z. Lys, 2008, Real and accrual‐based earnings management in the pre ‐ and post ‐ Sarbanes ‐ Oxley periods, The Accounting Review 83, 757-787.
Cohen, Daniel A., and Paul Zarowin, 2010, Accrual-based and real earnings management activities around seasoned equity offerings, Journal of Accounting and Economics 50, 2-19.
Core, John E., Wayne R. Guay, and S. P. Kothari, 2002, The economic dilution of employee stock options: Diluted EPS for valuation and financial reporting, The Accounting Review 77, 627-652.
Denis, David J., and Atulya Sarin, 2001, Is the market surprised by poor earnings realizations following seasoned equity offerings? Journal of Financial and Quantitative Analysis 36, 169-193.
Ewert, Ralf, and Alfred Wagenhofer, 2005, Economic effects of tightening accounting standards to restrict earnings management, The Accounting Review 80, 1101-1124.
Fama, Eugene F., 1980, Agency problems and the theory of the firm, Journal of Political Economy 88, 288-307.
Fama, Eugene F., and Kenneth R. French, 2002, Testing trade‐off and pecking order predictions about dividends and debt, Review of Financial Studies 15, 1-33.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
35
Farrell, Kathleen, Emre Unlu, and Jin Yu, 2014, Stock repurchases as an earnings management mechanism: The impact of financing constraints, Journal of Corporate Finance 25, 1-15.
Farrell, Kathleen A., Jin Yu, and Yi Zhang, 2013, What are the characteristics of firms that engage in earnings per share management through share repurchases?
Corporate Governance: An International Review 21, 334-350.
Frank, Murray Z., and Vidhan K. Goyal, 2009, Capital structure decisions: Which factors are reliably important? Financial Management 38, 1-37.
Gompers, Paul, Joy Ishii, and Andrew Metrick, 2003, Corporate governance and equity prices, The Quarterly Journal of Economics 118, 107-156.
Graham, John R., and Campbell R. Harvey, 2001, The theory and practice of corporate finance: Evidence from the field, Journal of Financial Economics 60, 187-243.
Graham, John R., Campbell R. Harvey, and Shiva Rajgopal, 2005, The economic implications of corporate financial reporting, Journal of Accounting and Economics 40, 3-73.
Grullon, Gustavo, and David L. Ikenberry, 2000, What do we know about stock repurchases? Journal of Applied Corporate Finance 13, 31-51.
Gunny, Katherine A., 2010, The relation between earnings management using real activities manipulation and future performance: Evidence from meeting earnings benchmarks, Contemporary Accounting Research 27, 855-888.
Hanlon, Michelle, Shivaram Rajgopal, and Terry Shevlin, 2003, Are executive stock options associated with future earnings? Journal of Accounting and Economics 36, 3-43.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
36
Healy, Paul M., 1985, The effect of bonus schemes on accounting decisions, Journal of Accounting and Economics 7, 85-107.
Healy, Paul M., and James M. Wahlen, 1999, A review of the earnings management literature and its implications for standard setting, Accounting Horizons 13, 365-383.
Hovakimian, Armen, Gayane Hovakimian, and Hassan Tehranian, 2004, Determinants of target capital structure: The case of dual debt and equity issues, Journal of Financial Economics 71, 517–540.
Hribar, Paul, Nicole Thorne Jenkins, and W. Bruce Johnson, 2006, Stock repurchases as an earnings management device, Journal of Accounting and Economics 41, 3-27.
Huang, Rong, Carol A. Marquardt, and Bo Zhang, 2014, Why do managers avoid EPS dilution? Evidence from debt-equity choice, Review of Accounting Studies 19, 877-912.
Ittner, Christopher D., David F. Larcker, and Madhav V. Rajan, 1997, The choice of performance measures in annual bonus contracts, The Accounting Review, 72, 231-255.
Jennings, Ross, Marc J. LeClere, and Robert B. Thompson, 1997, Evidence on the usefulness of alternative earnings per share measures, Journal of Financial and Quantitative Analysis 32, 24-33.
Jensen, Michael C., 1986, Agency cost of free cash flow, corporate finance, and takeovers, American Economic Review 76, 323-329.
Jensen, Michael C., and William H. Meckling, 1976, Theory of the firm: Managerial behavior, agency costs and ownership structure, Journal of Financial Economics 3, 305-360.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
37
Kwon, Sung S., and Qin Jennifer Yin, 2006, Executive compensation, investment opportunities, and earnings management: High-tech firms versus low-tech firms, Journal of Accounting, Auditing and Finance 21, 119-148.
Lambert, Richard A., and David F. Larcker, 1987, An analysis of the use of accounting and market measures of performance in executive compensation contracts, Journal of Accounting Research 25, 85-125.
Leary, Mark T., and Michael R. Roberts, 2014, Do peer firms affect corporate financial policy? Journal of Finance 69, 139-178.
Lemmon, Michael L., Michael R. Roberts, and Jaime F. Zender, 2008, Back to the beginning: Persistence and the cross-section of corporate capital structure, Journal of Finance 63, 1575-1608.
Leuz, Christian, Dhananjay Nanda, and Peter D. Wysocki, 2003, Earnings management and investor protection: An international comparison, Journal of Financial Economics 69, 505-527.
Loughran, Tim, and Jay Ritter, 1997, The operating performance of firms conducting seasoned equity offerings, Journal of Finance 52, 1823–1850.
MacKay, Peter, and Gordon M. Phillips, 2005, How does industry affect firm financial structure? Review of Financial Studies 18, 1433-1466.
Modigliani, Franco, and Merton H. Miller, 1958, The cost of capital, corporation finance, and the theory of investment, American Economic Review 48, 655-669.
Morck, Randall, Andrei Shleifer, and Robert W Vishny, 1988, Management ownership and market valuation: An empirical analysis, Journal of Financial Economics 20, 293-315.
Myers, Stewart C., 1984, The capital structure puzzle, Journal of Finance 39, 574-592.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
38
Oded, Jacob, and Allen Michel, 2008, Stock repurchases and the EPS enhancement fallacy, Financial Analysts Journal 64, 62-75.
Ohrn, Eric, 2014, Does corporate governance induce earnings management? Evidence from bonus depreciation and the fiscal cliff, Working paper.
Rajan, Raghuram G., and Henri Servaes, 1997, Analyst following of initial public offerings, Journal of Finance 52, 507-529.
Rajan, Raghuram G., and Luigi Zingales, 1995, What do we know about capital structure? Some evidence from international data, Journal of Finance 50, 1421-1460.
Roychowdhury, Sugata, 2006, Earnings management through real activities manipulation, Journal of accounting and economics 42, 335-370.
Schipper, Katherine, 1989, Commentary on earnings management, Accounting Horizons, 91-102.
Shleifer, Andrei, and Robert W. Vishny, 1992, Liquidation values and debt capacity:
A market equilibrium approach, Journal of Finance 47, 1343-66.
Skinner, Douglas J., 2008, The evolving relation between earnings, dividends, and stock repurchases, Journal of Financial Economics 87, 582-609.
Smith, Clifford W., and Ross L. Watts, 1982, Incentive and tax effects of executive compensation plans, Australian Journal of Management 7, 139-157.
Stein, Jeremy C., 1989, Efficient capital markets, inefficient firms: A model of myopic corporate behavior, The Quarterly Journal of Economics, 655-669.
Teoh, Siew Hong, Ivo Welch, and T. J. Wong, 1998a, Earnings management and the long-run market performance of initial public offerings, Journal of Finance 53, 1935-1974.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
39
Teoh, Siew Hong, Ivo Welch, and T. J. Wong, 1998b, Earnings management and the underperformance of seasoned equity offerings, Journal of Financial Economics 50, 63-99.
Titman, Sheridan, and Roberto Wessels, 1988, The determinants of capital structure choice, Journal of Finance 43, 1-19.
Welch, Ivo, 2004, Capital structure and stock returns, Journal of Political Economy 112, 106-131.
Young, Steven, and Jing Yang, 2011, Stock repurchases and executive compensation contract design: The role of earnings per share performance conditions, The Accounting Review, 86, 703-733.
Zang, Amy Y., 2012, Evidence on the tradeoff between real activities manipulation and accrual-based earnings management, The Accounting Review 87, 675-703.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
40
Table 1: Summary Statistics of Capital Structure and Firm Characteristics
The sample consists of all nonfinancial, nonutility firms in the annual Compustat database between 1965 and 2012. The table presents number of observations (Obs.), means (Mean), standard deviations (Std. Dev.), minimums (Min), medians (Median), and maximum (Max) for variables. Book Leverage is book value of total debt divided by total assets. Market Leverage is book value of total debt divided by market value of total assets. ∆ Book Leverage and ∆ Market Leverage are the annual change in book and market leverage respectively. EPSPX is basic earnings per share. EPSFX is diluted earnings per share. MB ratio is the market value of assets divided by total assets. Size is a logarithm of total assets.
Fixed asset is the ratio of property, plant, and equipment to total assets. R&D is the ratio of R&D expenditure to size. Std (CF) is the cash flow volatility. Profitability is the operating income before depreciation divided by total assets. The detailed definitions of these variables are reported in Appendix A.
Obs. Mean Std. Dev. Min Median Max
Book Leverage 193,025 0.206 0.207 0.000 0.166 0.870
Market Leverage 193,025 0.190 0.238 0.000 0.100 1.000
∆ Book Leverage 174,621 0.007 0.094 –0.316 0.000 0.400
∆ Market Leverage 174,621 0.007 0.127 –0.583 0.000 0.578
EPSPX 191,767 0.678 1.822 –5.770 0.480 6.990
EPSFX 184,470 0.666 1.786 –5.630 0.480 6.860
MB ratio 164,169 1.534 1.403 –1.445 1.199 8.273
Size 166,681 5.215 1.900 2.376 4.906 10.481
Fixed asset 166,390 0.308 0.229 0.005 0.255 0.901
R&D 166,681 0.035 0.076 0.000 0.000 0.450
Std (CF) 138,227 0.074 0.094 0.005 0.041 0.566
Profitability 165,816 0.098 0.159 –0.646 0.122 0.407
‧
Table 2: The effect of EPS on annual changes in leverage
The sample consists of all nonfinancial, nonutility firms in the annual Compustat database between 1965 and 2012. This table contains estimates from OLS regressions of the annual changes in leverage on the level of earnings per share:
𝛥𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒𝑖𝑡 = 𝛼 + 𝛽𝐸𝑃𝑆𝑖𝑡−1+ 𝛾𝑋𝑖𝑡−1+ 𝛿𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒𝑖𝑡−1+ 𝜂𝑖+ 𝜈𝑡+ 𝜀𝑖𝑡.
I do not report α and δ. In columns (1) to (3), I use basic earnings per share (EPSPX) as the level of earnings per share. In columns (4) to (6), I use diluted earnings per share (EPSFX) as the level of earnings per share. Panel A and panel B report results for book leverage and market leverage respectively. All variables are winsorized at the upper and lower 0.01-percentiles, and variable definitions are provided in Appendix A. t-statistics robust to heteroskedasticity are shown in parentheses. Statistical significance at the 1%, 5% and 10% level is denoted by ***, **, and *,
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
42 Table 2 continued
Panel B: Market leverage
EPSPX EPSFX
(1) (2) (3) (4) (5) (6)
EPS×100 –0.048** –0.089*** –0.087*** –0.059*** –0.102*** –0.099***
(–2.25) (–3.56) (–3.46) (–2.62) (–3.91) (–3.81)
MB ratio –0.001*** –0.001*** –0.001*** –0.001***
(–2.97) (–2.98) (–3.07) (–3.08)
Size 0.021*** 0.021*** 0.021*** 0.021***
(32.23) (32.18) (32.29) (32.25)
Fixed asset 0.037*** 0.037*** 0.037*** 0.036***
(9.28) (9.17) (9.16) (9.04)
R&D –0.042*** –0.042*** –0.042*** –0.042***
(–3.59) (–3.56) (–3.62) (–3.59)
Std (CF) –0.069*** –0.070*** –0.066*** –0.067***
(–6.90) (–6.92) (–6.62) (–6.64)
Profitability –0.047*** –0.047*** –0.048*** –0.048***
(–10.72) (–10.69) (–10.89) (–10.86)
Med. of ind. lev. 0.016*** 0.017***
(3.70) (3.90)
Year Dummy Yes Yes Yes Yes Yes Yes
Firm Dummy Yes Yes Yes Yes Yes Yes
R2 0.10 0.33 0.33 0.11 0.34 0.34
Obs. 173,536 121,129 121,129 166,660 118,794 118,794
‧
Table 3: The effect of EPS on net equity issues
The sample consists of all nonfinancial, nonutility firms in the annual Compustat database between 1965 and 2012. This table contains estimates from OLS regressions of the annual net equity issues on the level of earnings per share: preferred stock minus purchase of common and preferred stock divided by total assets. In columns (1) to (3), I use basic earnings per share (EPSPX) as the level of earnings per share. In columns (4) to (6), I use diluted earnings per share (EPSFX) as the level of earnings per share. All variables are winsorized at the upper and lower 0.01-percentiles, and variable definitions are provided in Appendix A.
t-statistics robust to heteroskedasticity are shown in parentheses. Statistical significance at the 1%, 5%
and 10% level is denoted by ***, **, and *, respectively.
EPSPX EPSFX
‧
Table 4: The effect of historical EPS on leverage
The sample consists of all nonfinancial, nonutility firms in the annual Compustat database between 1965 and 2012. This table contains estimates from Fama-MacBeth regressions of the leverage on the
The weights are the amount of external finance raised in each year. External finance is defined as net
The weights are the amount of external finance raised in each year. External finance is defined as net