The trade-off model with mean reverting earnings: Theory and empirical tests

• 成果类型: Article; Proceedings Paper
• 署名作者: Sarkar, S; Zapatero, F
• 署名单位: McMaster University; University of Southern California
• 刊物名称: ECONOMIC JOURNAL
• ISSN/ISSBN: 0013-0133
• DOI: 10.1111/1468-0297.t01-1-00156
• 发表日期: 2003
• 页码: 834-860
• 关键词: optimal capital structure; pecking order models; static tradeoff; debt

摘要

The 'trade-off theory' of capital structure predicts a positive relationship between earnings and leverage, contradictory to well established empirical evidence. Since corporate earnings are known to be mean reverting, we reformulate the trade-off model with mean reverting earnings. We show that, with mean reverting earnings, there should be a negative relationship between optimal leverage and the current earnings level. The model also illustrates the importance of the earnings reversion parameter in the determination of capital structure. The major implications of the model are Supported by empirical tests carried out with a sample of firms in the SP 500 Index.