Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Target behavior and financing
T2 - how conclusive is the evidence?
AU - Chang, Xin
AU - Dasgupta, Sudipto
PY - 2009/8
Y1 - 2009/8
N2 - The notion that firms have a debt ratio target that is a primary determinant of financing behavior is influential in finance. Yet, how definitive is the evidence? We address this issue by generating samples where financing is unrelated to a firm's current debt ratio or a target. We find that much of the available evidence in favor of target behavior based on leverage ratio changes can be reproduced for these samples. Taken together, our findings suggest that a number of existing tests of target behavior have no power to reject alternatives.
AB - The notion that firms have a debt ratio target that is a primary determinant of financing behavior is influential in finance. Yet, how definitive is the evidence? We address this issue by generating samples where financing is unrelated to a firm's current debt ratio or a target. We find that much of the available evidence in favor of target behavior based on leverage ratio changes can be reproduced for these samples. Taken together, our findings suggest that a number of existing tests of target behavior have no power to reject alternatives.
U2 - 10.1111/j.1540-6261.2009.01479.x
DO - 10.1111/j.1540-6261.2009.01479.x
M3 - Journal article
VL - 64
SP - 1767
EP - 1796
JO - Journal of Finance
JF - Journal of Finance
SN - 0022-1082
IS - 4
ER -