The subprime crisis effects in leverage mechanisms

• Autor(a) principal: Pereira, Afonso Vilhalva de Sousa
• Data de Publicação: 2020
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/29830
• topic: Leverage ratios; Permanent component; Transitory component; Rácios de endividamento; Componente permanente; Componente transitório; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

This dissertation documents a thorough investigation about the US nonfinancial firms’ capital structure. It extends the findings of Lemmon et.al (2008) that leverage ratios are characterized by both a permanent and a transitory feature to a more recent timespan including the subprime crisis years and its aftermath. The first means that leverage ratios are driven by an unobserved time-invariant factor that generates remarkably stable capital structures. The latter suggests that there is mean reversion in leverage ratios. In other words, high (low) levered firms tend to converge toward more moderate levels of leverage over time. These features are largely unexplained by previously identified determinants and they are also robust to firm exit or IPO processes. Further, the permanent element persists whether managers are more concerned with short- or long-term equilibriums on leverage determinants. It is also examined the relation between the firms’ net issuance activity and leverage with the results providing a strong evidence that it is an active management behaviour toward desired leverage ratios that is behind the transitory mechanism of leverage. Additionally, this analysis reveals that the tendency to issue debt is negatively correlated to firms’ leverage ratios. This dissertation still details the implications of neglecting the permanent component in future empirical specifications attempting to clarify the capital structure heterogeneity.