Capital structure and stock returns: Evidence from an emerging market with unique financing arrangements

Authors

Khamis Al-Yahyaee, Sultan Qaboos University
Toan Pham, University of New South Wales
Terry S. Walter, University of Technology SydneyFollow

RIS ID

114880

Publication Details

Al-Yahyaee, K., Pham, T. & Walter, T. (2013). Capital structure and stock returns: Evidence from an emerging market with unique financing arrangements. Applied Financial Economics, 23 (14), 1197-1203.

Abstract

We investigate capital structure dynamics in a unique financing environment where (1) we avoid the complex tax environments faced by previous studies and where (2) firms rely primarily on bank loans rather than the public debt market.Consistent with recent empirical evidence, we find that stock returns are a first-order determinant of capital structure. Firms show some tendency to rebalance towards their target capital structure. However, the impact of stock returns dominates the effects of rebalancing. We also find that firm's stock returns induce some corporate issuing activity, and managers use issuing activity to counteract some of the mechanistic effects of stock returns.