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Target Behavior and Financing: How Conclusive Is the Evidence?

โœ Scribed by XIN CHANG; SUDIPTO DASGUPTA


Book ID
109176604
Publisher
John Wiley and Sons
Year
2009
Tongue
English
Weight
216 KB
Volume
64
Category
Article
ISSN
0022-1082

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โœฆ Synopsis


ABSTRACT

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.


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