Intra-Industry Capital Structure Dispersion

Abstract

This paper examines the dispersion of capital structures among firms within an industry, and then relates this dispersion to industry characteristics. Using data from 1992 to 2000 from a broad cross-section of industries, we find that differences on firms' capital structures are greater in industries that are highly concentrated, that exhibit looser corporate governance practices, and in which assets are easier to transfer. We also find some evidence of greater capital structure dispersion in industries where firms use different production technologies, in older industries, and in industries with abundant growth opportunities. These findings support the importance of agency effects on capital structure and suggest that liquidity considerations are particularly relevant to a firm's capital structure choices.

Keywords: Capital Structure, Intra-Industry Dispersion, Industry Effects, Agency Costs, Asset Liquidity

JEL Classification: G30, G32