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The Bell Journal of Economics and Management Science, 5
Arditti (1967)
Risk and the Required Rate of Return on EquityJournal of Finance, XXII
Baker (1973)
Risk, Leverage and Profitability: An Industry AnalysisReview of Economics and Statistics, LV
Carleton (1970)
An Analytical Model for Long-Range Financial PlanningJournal of Finance, XXV
McEnally McEnally, Tavis Tavis (September 1972)
“Spatial Risk and Return Relationships: A Reconsideration,”Journal of Risk and Insurance, Vol. XXXIX
Keenan (1970)
Models of Equity Valuation: The Great SERM BubbleJournal of Finance, XXV
Modigliani Modigliani, Miller Miller (June 1968)
“The Cost of Capital, Corporation Finance, and the Theory of Investment,”American Economic Review, Vol. XLVIII
Nerlove Nerlove (August 1968)
Factors Affecting Differences Among Rates of Return on Investments in Individual Common StocksReview of Economics and Statistics, Vol. L
Carleton (1967)
Measuring Corporate Profit OpportunitiesJournal of Financial and Quantitative Analysis, II
Hail (1967)
Firm Size and ProfitabilityReview of Economics and Statistics, 49
Gale (1972)
Market Share and Rate of ReturnReview of Economics and Statistics, LIV
â JUNE 1977 JOINT DETERMINATION OF RATE OF RETURN AND CAPITAL STRUCTURE: AN ECONOMETRIC ANALYSIS T. AND H. WILLARD CARLETON IRWIN SILBERMAN* I. INTRODUCTION CONCLUSION AND MANY STUDIES in recent years have noted that-contrary to intuition and received theory-financial leverage (measured as the book value .of debt/capital or debt/equity) and mean rates of return on equity vary inversely among firms and industries. Hall and Weiss (1967) and Gale (1972) found this phenomenon using corporate book earnings to compute rate of return, whereas Arditti (1967) and Nerlove (1968) generated similar results using stockholder returns. Recently, Baker (1973), utilizing corporate profits as his measure, also found the âwrongâ sign for leverage effects in a single equation model but the âcorrectâ sign in a simultaneous equations model. Unfortunately, the book rate of return on equity already reflects corporate financing choices made in light of underlying operating profit and risk characteristics. It is a principal proposition of this study that a more fruitful line of approach is to examine the relationship between these characteristics and the capital structure decision. Our findings, based on this approach are: a. Straightforward finance-theoretic considerations suggest and our evidence confirms that an industryâs average book rate of
The Journal of Finance – Wiley
Published: Jun 1, 1977
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