Capital Structure-Myers

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Capital Structure
Stewart C. Myers
The Journal of Economic Perspectives, Vol. 15, No. 2. (Spring, 2001), pp. 81-102.
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Most research on capital structure has focused on public, nonfinancial corporations with access to U.S. or international capital markets. This is the right place to start. These companies have the broadest menu of financing choices and can adjust their capital structures at relatively low cost. Yet even 40 years after the
Modigliani and Miller research, our understanding of these firms ' financing choices is limited. We know much more about financing tactics-for example the tax-efficient design or timing of a specific security issue-than about financing strategy, for example the firm 's choice of a target overall debt level.
Research on financing tactics confirms the importance of taxes, information differences and agency costs. Whether these factors have first-order effects on the overall levels of debt vs. equity financing is still an open question. Debt ratios of established, public U.S. corporations vary within apparently homogenous industries.
There is also variation over time, even when taxation, information differences and agency problems are apparently constant.
Some Facts about Financing
Most of the aggregate gross investment by U.S. nonfinancial corporations has been financed from internal cash flow (depreciation and retained earnings).
External financing in most years covers less than 20 percent of real investment, and most of that financing is debt. Net stock issues are frequently negative: that is, more

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