On the Determinants of Firm Leverage: A Structural Dynamic Estimation

The article of record as published may be located at http://dx.doi.org/10.2139/ssrn.1669014I provide further evidence on the determinants of corporate capital structure by estimating a dynamic trade-o¤ model of the rm that includes investment, leverage, and payout de- cisions. The structural model generates a leverage ratio that oscillates around a long-run, time-invariant level and consistently reproduces the convergence and stability of leverage reported by Lemmon, Roberts, and Zender (2008). The dynamic model sheds light on the role played by the primitive characteristics of the rm (e.g., production technology) to explain the cross-sectional variation in capital structure. I use Efficient Method of Moments (EMM) to recover the structural parameters