Arbeitspapier
Nonlinear modeling of target leverage with latent determinant variables: new evidence on the trade-off theory
The trade-off theory on capital structure is tested by modelling the capital structure target as the solution to a maximization problem. This solution maps asset volatility and loss given default to optimal leverage. By applying nonlinear structural equation modelling, these unobservable variables are estimated based on observable indicator variables, and simultaneously, the speed of adjustment towards this leverage target is estimated. Linear specifications of the leverage target suffer from overlap between the predictions of various theories on capital structure about the sign and significance of determinants. In contrast, the framework applied here allows for a direct test: results confirm the trade-off theory for small and medium-sized firms, but not for large firms.
- Language
-
Englisch
- Bibliographic citation
-
Series: SFB 649 Discussion Paper ; No. 2008,062
- Classification
-
Wirtschaft
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Bankruptcy; Liquidation
Optimization Techniques; Programming Models; Dynamic Analysis
- Subject
-
Capital structure
nonlinear
latent variables
trade-off theory
Kapitalstruktur
Betriebswirtschaftliches Ziel
Nichtlineare Optimierung
Multivariate Analyse
Theorie
USA
Welt
- Event
-
Geistige Schöpfung
- (who)
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Sabiwalsky, Ralf
- Event
-
Veröffentlichung
- (who)
-
Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
- (where)
-
Berlin
- (when)
-
2008
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Sabiwalsky, Ralf
- Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
Time of origin
- 2008
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