The Determinants of Capital Structure Choice




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    • Both authors are from the University of California, Los Angeles, and Wessels is also from Erasmus University, Rotterdam. We gratefully acknowledge the research assistance provided by Jim Brandon, Won Lee, and Erik Sirri and helpful comments from our UCLA colleagues, especially Julian Franks, David Mayers, Ron Masulis, and Walter Torous. We also received helpful comments from seminar participants at UCLA and the University of Rochester. Titman received financial support from the Batterymarch fellowship program and from the UCLA Foundation for Research in Financial Markets and Institutions. Wessels received financial support from the Netherlands Organization for the Advancement of Pure Research (Z. W. O.).


This paper analyzes the explanatory power of some of the recent theories of optimal capital structure. The study extends empirical work on capital structure theory in three ways. First, it examines a much broader set of capital structure theories, many of which have not previously been analyzed empirically. Second, since the theories have different empirical implications in regard to different types of debt instruments, the authors analyze measures of short-term, long-term, and convertible debt rather than an aggregate measure of total debt. Third, the study uses a factor-analytic technique that mitigates the measurement problems encountered when working with proxy variables.