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Determinants of Financial Structure: a New Methodological Approach

Determinants of Financial Structure: a New Methodological Approach Determinants of Financial Structure: a New Methodological Approach MICHAEL G. FERRI and WESLEY H. JONES* I. Introduction THE ASSOCIATION BETWEEN A firm’s financial structure and its operating characteristics-its industrial classification and its size, among others-took on added importance as a result of the debate, started by Modigliani and Miller [8], regarding cost of capital and optimal structure. Impressive evidence that industrial class influences financial structure has been marshalled by Scott [12] and Scott and Martin [13]. Support for the view that size might shape a firm‘s debtequity mix may be found in Scott and Martin [13]. However, dissenting evidence has been presented, most notably by Remmers, Stonehill, Wright and Beekhuisen [ll] who argue that neither size nor industry is clearly a determinant of the firm’s use of debt. The aim of this paper is to investigate the relationships between a f m ’ s financial structure and its industrial class, size, variability of income, and operating leverage. The methodology used in this paper is new to this area of inquiry and promises superior results, because it avoids several measurement difficulties encountered in previous work. The resolution of these difficulties occurs through the development, within this paper, of a http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Determinants of Financial Structure: a New Methodological Approach

FERRI, MICHAEL G.; JONES, WESLEY H.
The Journal of Finance , Volume 34 (3) – Jun 1, 1979
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References (12)

Publisher
Wiley
Copyright
1979 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1979.tb02130.x
Publisher site
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Abstract

Determinants of Financial Structure: a New Methodological Approach MICHAEL G. FERRI and WESLEY H. JONES* I. Introduction THE ASSOCIATION BETWEEN A firm’s financial structure and its operating characteristics-its industrial classification and its size, among others-took on added importance as a result of the debate, started by Modigliani and Miller [8], regarding cost of capital and optimal structure. Impressive evidence that industrial class influences financial structure has been marshalled by Scott [12] and Scott and Martin [13]. Support for the view that size might shape a firm‘s debtequity mix may be found in Scott and Martin [13]. However, dissenting evidence has been presented, most notably by Remmers, Stonehill, Wright and Beekhuisen [ll] who argue that neither size nor industry is clearly a determinant of the firm’s use of debt. The aim of this paper is to investigate the relationships between a f m ’ s financial structure and its industrial class, size, variability of income, and operating leverage. The methodology used in this paper is new to this area of inquiry and promises superior results, because it avoids several measurement difficulties encountered in previous work. The resolution of these difficulties occurs through the development, within this paper, of a

Journal

The Journal of Finance – Wiley

Published: Jun 1, 1979

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