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Capital structure and stock returns: evidence from an emerging market with unique financing arrangements

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  • Khamis H. Al-Yahyaee
  • Toan M. Pham
  • Terry S. Walter

Abstract

We investigate capital structure dynamics in a unique financing environment where (1) we avoid the complex tax environments faced by previous studies and where (2) firms rely primarily on bank loans rather than the public debt market. Consistent with recent empirical evidence, we find that stock returns are a first-order determinant of capital structure. Firms show some tendency to rebalance towards their target capital structure. However, the impact of stock returns dominates the effects of rebalancing. We also find that firm's stock returns induce some corporate issuing activity, and managers use issuing activity to counteract some of the mechanistic effects of stock returns.

Suggested Citation

  • Khamis H. Al-Yahyaee & Toan M. Pham & Terry S. Walter, 2013. "Capital structure and stock returns: evidence from an emerging market with unique financing arrangements," Applied Financial Economics, Taylor & Francis Journals, vol. 23(14), pages 1197-1203, July.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:14:p:1197-1203
    DOI: 10.1080/09603107.2013.799754
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    Cited by:

    1. Sufian Radwan Al-Manaseer, 2020. "Relationship Between Capital Structure and Stock Returns of Jordanian Commercial Banks," International Business Research, Canadian Center of Science and Education, vol. 13(2), pages 100-100, February.

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