Capital structure and stock returns

Evidence from an emerging market with unique financing arrangements

Khamis H. Al-Yahyaee, Toan M. Pham, Terry S. Walter

Research output: Contribution to journalArticle

Abstract

We investigate capital structure dynamics in a unique financing environment where (1) we avoid the complex tax environments faced by previous studies and where (2) firms rely primarily on bank loans rather than the public debt market.

Consistent with recent empirical evidence, we find that stock returns are a first-order determinant of capital structure. Firms show some tendency to rebalance towards their target capital structure. However, the impact of stock returns dominates the effects of rebalancing. We also find that firm's stock returns induce some corporate issuing activity, and managers use issuing activity to counteract some of the mechanistic effects of stock returns.

Original languageEnglish
Pages (from-to)1197-1203
Number of pages7
JournalApplied Financial Economics
Volume29
Issue number14
DOIs
Publication statusPublished - Dec 1 2013

Fingerprint

Financing
Capital structure
Capital stock
Stock returns
Emerging markets
Dynamic capital structure
Rebalancing
Tax
Public debt
Bank loans
Managers
Empirical evidence

Keywords

  • Bank debt
  • Capital structure dynamics
  • Issuing activity
  • Oman
  • Stock returns

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Capital structure and stock returns : Evidence from an emerging market with unique financing arrangements. / Al-Yahyaee, Khamis H.; Pham, Toan M.; Walter, Terry S.

In: Applied Financial Economics, Vol. 29, No. 14, 01.12.2013, p. 1197-1203.

Research output: Contribution to journalArticle

@article{d1933c237815466aa6a56bb0308849c8,
title = "Capital structure and stock returns: Evidence from an emerging market with unique financing arrangements",
abstract = "We investigate capital structure dynamics in a unique financing environment where (1) we avoid the complex tax environments faced by previous studies and where (2) firms rely primarily on bank loans rather than the public debt market.Consistent with recent empirical evidence, we find that stock returns are a first-order determinant of capital structure. Firms show some tendency to rebalance towards their target capital structure. However, the impact of stock returns dominates the effects of rebalancing. We also find that firm's stock returns induce some corporate issuing activity, and managers use issuing activity to counteract some of the mechanistic effects of stock returns.",
keywords = "Bank debt, Capital structure dynamics, Issuing activity, Oman, Stock returns",
author = "Al-Yahyaee, {Khamis H.} and Pham, {Toan M.} and Walter, {Terry S.}",
year = "2013",
month = "12",
day = "1",
doi = "10.1080/09603107.2013.799754",
language = "English",
volume = "29",
pages = "1197--1203",
journal = "Applied Economics",
issn = "0003-6846",
publisher = "Routledge",
number = "14",

}

TY - JOUR

T1 - Capital structure and stock returns

T2 - Evidence from an emerging market with unique financing arrangements

AU - Al-Yahyaee, Khamis H.

AU - Pham, Toan M.

AU - Walter, Terry S.

PY - 2013/12/1

Y1 - 2013/12/1

N2 - We investigate capital structure dynamics in a unique financing environment where (1) we avoid the complex tax environments faced by previous studies and where (2) firms rely primarily on bank loans rather than the public debt market.Consistent with recent empirical evidence, we find that stock returns are a first-order determinant of capital structure. Firms show some tendency to rebalance towards their target capital structure. However, the impact of stock returns dominates the effects of rebalancing. We also find that firm's stock returns induce some corporate issuing activity, and managers use issuing activity to counteract some of the mechanistic effects of stock returns.

AB - We investigate capital structure dynamics in a unique financing environment where (1) we avoid the complex tax environments faced by previous studies and where (2) firms rely primarily on bank loans rather than the public debt market.Consistent with recent empirical evidence, we find that stock returns are a first-order determinant of capital structure. Firms show some tendency to rebalance towards their target capital structure. However, the impact of stock returns dominates the effects of rebalancing. We also find that firm's stock returns induce some corporate issuing activity, and managers use issuing activity to counteract some of the mechanistic effects of stock returns.

KW - Bank debt

KW - Capital structure dynamics

KW - Issuing activity

KW - Oman

KW - Stock returns

UR - http://www.scopus.com/inward/record.url?scp=84912075742&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84912075742&partnerID=8YFLogxK

U2 - 10.1080/09603107.2013.799754

DO - 10.1080/09603107.2013.799754

M3 - Article

VL - 29

SP - 1197

EP - 1203

JO - Applied Economics

JF - Applied Economics

SN - 0003-6846

IS - 14

ER -