Financial Leverage, Corporate Investment, and Stock Returns

• 成果类型: Article
• 署名作者: Ozdagli, Ali K.
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - Boston
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhr145
• 发表日期: 2012
• 页码: 1033
• 关键词: ASSET PRICE DYNAMICS; capital structure; cross-section; Market equilibrium; adjustment costs; GROWTH OPTIONS; beta

摘要

This article rationalizes empirical patterns of market leverage, book leverage, book-to-market ratios, and stock returns across different book-to-market portfolios, using a model of firm financing and investment. The model analytically shows that tax deductibility of interest payments increases. effective investment irreversibility and that investment irreversibility weakens the relation between book-to-market values and returns. This provides a clear and novel mechanism showing how financial leverage affects stock returns beyond the standard Modigliani-Miller paradigm. The article argues that market leverage, rather than operating leverage or investment irreversibility, explains a major portion of the value premium. Empirical evidence supports this argument. (JEL G12, G31, G32)