Determinants of the choice of financial instruments: An empirical investigation.

摘要

The purpose of this study is to empirically test hypotheses derived from theoretical models which attempt to explain optimal capital structure decisions. In particular, we investigate the effects of personal and corporate taxes, bankruptcy costs, information asymmetries, agency costs, and the product market structure on the type of financing employed by corporations. The quality of a firm, the slope of the yield curve, and industry concentration ratios are also included in the pool of independent variables. Binomial and multinomial PROBIT models are utilized to test the choice among straight debt, convertible debt, and common equity. The simultaneous determination of debt and taxes, and debt and total assets are also incorporated in the analysis. There is strong evidence that deviations from a long-run target debt ratio are extremely important in the type of financing chosen. The U-shaped relationship between risk and leverage is also confirmed. Moreover, we obtain a negative and statistically significant coefficient for risk when the long-run measure of risk is utilized. All the other results are highly dependent on the approximation used for the probability of bankruptcy. There is evidence, albeit a weak one, that increases in the difference between personal and corporate tax rates augment the use of leverage. High levels of depreciation and investment tax credits increase the probability of a non-equity issue. Corporations with high growth opportunities and high percentage of insider ownership do use equity when external financing is needed. The quality of a corporation is insignificant in determining the type of financing. The results on the effect of the slope of the yield curve and industry concentration are mixed. Overall, the results support the static tax and bankruptcy tradeoff models as well as the agency costs models.