Profitability and Financial Leverage: Evidence from a Quasi-Natural Experiment

• 成果类型: Article
• 署名作者: Heath, Davidson; Sertsios, Giorgo
• 署名单位: Utah System of Higher Education; University of Utah; University of Wisconsin System; University of Wisconsin Milwaukee
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.4235
• 发表日期: 2022
• 页码: 8386-8410
• 关键词: profits-leverage relation; trademarks; Product markets; capital structure; market power

摘要

The relationship between profitability and leverage is controversial in the capital structure literature. We revisit this relation in light of a novel quasi-natural experiment that increases market power for a subset of firms. We find that treated firms increase their profitability throughout the treatment period. However, they only transiently reduce financial leverage, gradually reverting to their preshock level. Firms respond differently according to size with large firms gradually adjusting their leverage toward a new target and small firms reducing it. The patterns are broadly consistent with dynamic trade-off models with both fixed and variable adjustment costs.