Working Paper: NBER ID: w9032
Authors: Peter Mackay; Gordon M. Phillips
Abstract: We examine how intra-industry variation in financial structure relates to industry factors and whether real and financial decisions are jointly determined within competitive industries. We find that industry and group factors beyond standard industry fixed effects are also important to firm financial structure. Firm financial leverage, capital intensity, and cash-flow risk are interdependent decisions that depend on the firm's proximity to the median industry capital-labor ratio, the actions of firms within its industry quintile, and its status as entrant, incumbent, or exiting firm. Our results support competitive industry equilibrium models of financial structure in which debt, technology, and risk are simultaneous decisions.
Keywords: No keywords provided
JEL Codes: G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm's position relative to the industry median technology (L63) | firm's financial leverage (G32) |
| changes in financial leverage (G32) | changes in risk (D81) |
| firm financial leverage (G32) | capital intensity (E22) |
| firm financial leverage (G32) | cash flow risk (G32) |
| firms' financial decisions (G32) | actions of their peers (C92) |