Scandinavian Working Papers in Economics
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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2000:20:
Dynamic Capital Structure: the Case of Hufvudstaden

Andreas Graflund ()

Abstract: This paper introduces a new approach of testing capital structure hypothesis on a firm specific level. Johansenís procedure for cointegration testing is employed to test theories of optimal capital structure. The sample covers a firm with unique properties, Hufvudstaden, during the period 1938 until present. The approach of cointegration allows testing of long-run equilibrium between non-stationary time-series. We find empirical support that capital structure follow a dynamic equilibrium path. However, this equilibrium is more complex as posited by existing theories. The result is found for leverage measured as both book-value- and market-value-of-equity.

Keywords: capital structure; cointegration; dynamic capital structure; (follow links to similar papers)

JEL-Codes: C32; G32; (follow links to similar papers)

15 pages, November 14, 2000

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