The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Optimal Financial Instruments
Published: 12/01/1991 | DOI: 10.1111/j.1540-6261.1991.tb04638.x
JAIME F. ZENDER
Debt and equity are developed as optimal financial instruments in a model where cash flows and control rights are allocated to investors endogenously. When investment decisions must be made by a single party, the debtholder's cash flows are fixed in order to provide the equityholder with efficient incentives for investment. Ownership of control may be transferred to the debtholder to attenuate the impact of asymmetric information, concerning the investment opportunity, on the efficiency of the decision making.
Back to the Beginning: Persistence and the Cross‐Section of Corporate Capital Structure
Published: 07/19/2008 | DOI: 10.1111/j.1540-6261.2008.01369.x
MICHAEL L. LEMMON, MICHAEL R. ROBERTS, JAIME F. ZENDER
We find that the majority of variation in leverage ratios is driven by an unobserved time‐invariant effect that generates surprisingly stable capital structures: High (low) levered firms tend to remain as such for over two decades. This feature of leverage is largely unexplained by previously identified determinants, is robust to firm exit, and is present prior to the IPO, suggesting that variation in capital structures is primarily determined by factors that remain stable for long periods of time. We then show that these results have important implications for empirical analysis attempting to understand capital structure heterogeneity.