Is There an Optimal Industry Financial Structure?

47 Pages Posted: 17 May 2001

See all articles by Peter MacKay

Peter MacKay

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Gordon M. Phillips

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 11, 2002

Abstract

We examine how intra-industry variation in financial structure relates to industry factors and whether real and financial decisions are jointly determined within competitive industries. We find that industry and group factors beyond standard industry fixed effects are also important to firm financial structure. Firm financial leverage, capital intensity, and cash-flow risk are interdependent decisions that depend on the firm's proximity to the median industry capital-labor ratio, the actions of firms within its industry quintile, and its status as entrant, incumbent, or exiting firm. Our results support competitive industry equilibrium models of financial structure in which debt, technology, and risk are simultaneous decisions.

Keywords: Capital Structure, Debt, Equity, Financial Structure, Intra-industry Equilibrium

JEL Classification: G31, G32

Suggested Citation

Mackay, Peter and Phillips, Gordon M., Is There an Optimal Industry Financial Structure? (June 11, 2002). Available at SSRN: https://ssrn.com/abstract=269249 or http://dx.doi.org/10.2139/ssrn.269249

Peter Mackay

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong
852-2358-8319 (Phone)
852-2358-1749 (Fax)

HOME PAGE: http://www.bm.ust.hk/~fina/staff/pmackay.html

Gordon M. Phillips (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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