We examine the impact of explicitly incorporating a measure of debt capacity in recent tests of competing theories of capital structure. Our main results are that if external funds are required, in the absence of debt capacity concerns, debt appears to be preferred to equity. Concerns over debt...

The impact of debt capacity on recent tests of competing theories of capital structure is examined. Controlling for debt capacity, the pecking order appears to be a good description of the financing policies of a large sample of firms. The main results are first, that internally generated funds...

We examine the evolution of corporate capital structures and find that little of the variation in leverage is captured by previously identified determinants, such as size, market-to-book, profitability, industry, etc. Instead, the majority of variation in leverage ratios is driven by an...

We examine the contracts used to compensate the managers of the seven dual-purpose investment companies that existed between 1967 and 1985 to determine whether financial incentives influence real behavior in the predicted way. The compensation contracts for these funds provided explicit...

A theory of capital structure in which costs associated with asymmetric information are the sole friction is used to present a new perspective on the standard pecking order theory. In the model, both the amount of debt and the restrictiveness of the associated debt covenants are considered to be...

We present a tradeoff theory of capital structure in which costs associated with asymmetric information are the sole friction. By considering both the amount of debt as well as the restrictiveness of the associated debt covenants a more complete characterization of debt structure is examined...