How Stable Are Corporate Capital Structures?




    Search for more papers by this author
    • Harry DeAngelo is with the University of Southern California. Richard Roll is with Caltech and is Professor Emeritus at UCLA. This research was supported by the Kenneth King Stonier Chair at the USC Marshall School of Business and by the Joel Fried Chair at the UCLA Anderson School of Management. Special thanks are due to Cam Harvey, the Editor, for many useful comments that helped improve this paper. For helpful comments, we also thank three referees, an Associate Editor, the Co-Editor (John Graham), as well as Tony Bernardo, Fabio Braggon, Daniel Carvalho, Steve Cauley, Tom Chang, Tom Copeland, Linda DeAngelo, Andrea Eisfeldt, Eugene Fama, Wayne Ferson, Murray Frank, Stuart Gabriel, Mark Grinblatt, Gareth James, Lyndon Moore, Kevin J. Murphy, Oguzhan Ozbas, Chris Parsons, Gordon Phillips, Jay Ritter, Lori Santikian, Eduardo Schwartz, Berk Sensoy, Piet Sercu, Douglas Skinner, René Stulz, Avanidhar Subrahmanyam, Ivo Welch, Mark Westerfield, Toni Whited, and Josef Zechner. We thank Ed Tinoco for help in accessing data from the pre-CRSP/Compustat era and Amy Allen, Xiaolin Gong, Richard Graham, Mauri Gustafson, Michael Neagoe, Jonathan Pack and Matthew Wong for superb work on those data. We also thank Chao Zhuang for outstanding research assistance.


Leverage cross-sections more than a few years apart differ markedly, with similarities evaporating as the time between them lengthens. Many firms have high and low leverage at different times, but few keep debt-to-assets ratios consistently above 0.500. Capital structure stability is the exception, not the rule, occurs primarily at low leverage, and is virtually always temporary, with many firms abandoning low leverage during the post-war boom. Industry-median leverage varies widely over time. Target-leverage models that place little or no weight on maintaining a particular ratio do a good job replicating the substantial instability of the actual leverage cross-section.