Leverage, excess leverage, and future returns

• 成果类型: Article
• 署名作者: Caskey, Judson; Hughes, John; Liu, Jing
• 署名单位: University of California System; University of California Los Angeles
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-011-9176-1
• 发表日期: 2012
• 页码: 443-471
• 关键词: cross-section; Distress risk; FULLY REFLECT; default risk; stock-prices; tax benefits; firms hold; earnings; debt; cash

摘要

We examine the cross-sectional relation between leverage and future returns while considering the dynamic nature of capital structure and potentially delayed market reactions. Prior studies find a negative relation between leverage and future returns that contradicts standard finance theory. We decompose leverage into optimal and excess components and find that excess leverage tends to drive this negative relation. We also find that excess leverage predicts firm fundamentals and that the negative relation between excess leverage and future returns may be explained by investors' failure to react promptly to information contained in excess leverage about future financial distress and asset growth.