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The purpose of this paper is to explore the effect of leverage mimicking factor portfolios in explaining stock return variations. This paper broadens the focus of the current asset pricing literature by forming portfolios mimicking the leverage factor.

Following Fama and French's and Carhart's procedure in forming size, book‐to‐market and momentum mimicking portfolios, the authors of this paper form leverage mimicking factor portfolios to explain stock returns. A five factor model is constructed that explains the variations in stock returns better relative to the other asset pricing models including the Fama‐French‐Carhart four factor model.

The findings indicate that the leverage mimicking portfolio helps to explain stock return variations better relative to the other asset pricing models including the Fama‐French‐Carhart four factor model. Results are robust to other risk factors.

The results lead us to explore further avenues in using other risk factors in asset pricing such as future work to consider other cross‐sectional attributes such as the stochastic behaviour of earnings or profitability that might also produce common variation in stock returns. There may be other risk factors that carry a premium and thus can be used for asset pricing.

The paper's findings are important in fund management when selecting or evaluating portfolio performance. The authors introduce an additional factor that has a sound theoretical appeal and show that leverage mimicking factor portfolios provide additional information in pricing assets, both in the cross section of all shares and in different sectors.

To the best of the authors' knowledge this is the first study of the effect of leverage mimicking factor portfolios in explaining stock return variations.

The purpose of this paper is to analyze the corporate capital structure stability of listed firms in China during the period 1990–2013.

The study uses panel data from a sample of 716 firms that have been listed in China for at least 15 years. A fixed-effects panel data regression model with time effects is used in the estimation.

The findings show that size, profitability and investment opportunities have a significant influence on capital structure, whereas the tangibility of assets is not found to be significant. Few industries show significance in explaining differences and variation in leverage ratios.

It is recommended by this study that corporate managers of listed firms in China should consider leverage ratios variation while choosing the capital structure.

This study can be helpful in assisting companies to make financing decisions and setting up strategies relevant in their growth and profitability. The study will also have a significant assistance to bring to light corporate issues to policy makers, especially in the areas of both equity and debt financing, particularly the bond market. To the society, this study will show the nature of Chinese-listed companies, and it can assist individual investors in making decisions regarding companies in which they hold investments and in making meaningful comparisons with other companies. The paper also aims at contributing to the existing literature on the empirical study on capital structure.

The purpose of this paper is to investigate the phenomena of convergence and stability of leverage reported by Lemmon et al. (2008).

A dynamic trade-off model of the firm was used to simulate investment, leverage, and payout decisions for different types of firms. From an econometric standpoint, the Efficient Method of Moments was used to recover the structural parameters.

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 et al. (2008). The model also suggests the causes of those observed properties of the data. That is, convergence is due to the mean-reversion of profits while stability is due to the different fundamental characteristics (e.g. capital elasticity, volatility of profits, etc.) of the firm.

Determining the optimal capital structure of a firm is a complex problem that has challenged academics and practitioners for a long time. Understanding leverage decisions is of great importance not only for financial managers, but also for investors, such as banks, debt-holders, equity-holders, and other capital providers, who need to understand how firms make capital structure decisions in order to achieve an efficient allocation of funds.

The author shows that the firm-specific fixed effects in leverage regressions are not related to the usual determinants (e.g. profitability, market-to-book ratio), but to the primitive characteristics of the firm (e.g. elasticity of capital in the production function, the volatility of profits, the capital depreciation rate, the income tax rate, etc.)

The purpose of the study is to explore the relationship between bank leverage and stock liquidity.

A simultaneous equations model and a two-stage least squares method were used to find the above-mentioned relationship, using data from all the listed banks of the BRICS countries, for the years 2007-2014.

A decrease in leverage results in lower stock liquidity of the banks. Bank leverage is a significant determinant of stock liquidity, but changes in stock liquidity do not explain the variation in bank leverage. However, in the case of small banks, an increase in stock liquidity results in lower leverage. In the case of large banks, bank leverage and stock liquidity are significant determinants of each other, and the relationship between them is positive.

An increase in high quality capital, as required by the Basel III accord, will result in lower stock liquidity of the banks in emerging markets. However, stock liquidity shocks do not affect the leverage of banks.

To the best of the authors’knowledge, this study is the first one to explore the relationship between leverage and stock liquidity of financial firms. It contributes to the existing literature on bank liquidity and capital structure and helps managers and policy makers to formulate better policies.

The purpose of this paper is to examine the many factors that affect the leverage decisions of publicly traded Australian companies, and tests to see whether these factors are reliably important. The relationship between these factors and the leverage decision is examined.

This study uses a multiple linear panel regressions to study the relationship between the factors and leverage.

The authors find a set of eight factors which are reliably important for capital structure decision making. These factors include: profitability, log of assets, median industry leverage, industry growth, market to book ratio, tangibility, capital expenditure, and investment tax credits. The empirical evidence indicates weakening support for the pecking order hypothesis and increasing support for the trade-off theory in Australia.

This paper examines the determinants of capital structure using Australian firms and provides a comprehensive empirical support for the capital structure theories.

The purpose of this paper is to examine whether or not industry membership can explain the leverage of Shanghai listed firms prior to the 2007 financial crisis. In view of the central role that manufacturing industry played in China's rise as a global economic power, the authors are particularly interested in whether or not manufacturing is a special case.

The paper undertakes a comparative study of leverage differences between manufacturing and non-manufacturing industry firms on both a cross-section and time-series basis. This is supplemented by a pooled regression analysis that models the factors determining leverage on an industry-by-industry basis.

The authors find that leverage levels differ across industries because of industry-based differences in financial characteristics. It is also found that, despite playing a leading role in China's economic development, there is no evidence to suggest that manufacturing is a special case. Across all sectors borrowing-power-related variables were identified as being important determinants of leverage and, contrary to the expectations, factors relating to profitability were largely insignificant.

The trade off and pecking order capital structure theories found to be commonly applicable to firms in the western business environment do not appear to adequately explain capital structure in China.

The paper identify evidence to suggest that China needs to be treated as a “special case” in the context of capital structure theory due to the unique cultural and business environment.

The purpose of this paper is to find out firm, industry, and country level determinants of capital structure of Pakistani listed non-financial firms.

The authors use a fixed effects panel data model over a 39 years (1972-2010) unbalanced panel data of Pakistani non-financial listed firms to determine the factors that influence capital structure of these firms.

The authors find that Pakistani firms prefer retained earnings to finance their business projects, and debt is easily available for experienced firms. Moreover, socio-economic collusive networks, poor corporate governance mechanism along with weak legal system provide these firms an opportunity to pass on their risk to the creditors (banks).

The data set does not contain factors characterizing inter-industry heterogeneity, therefore, the authors use mean industry leverage and mean industry profitability to explore if any relationship exists between leverage of firms, and their respective industry leverage/profitability.

Pakistani non-financial firms are highly leveraged increasing their probability to face financial distress in erratic economic conditions. As such, the policy makers need to develop capital markets of Pakistan to enable a resilient corporate capital structure. Further, erratic economic conditions of Pakistan create uncertain business environment yielding short-term opportunities and to finance them Pakistani firms use short-term debt as a main financing source. The policy makers need to improve corporate governance mechanism and strengthen legal system that will go a long way to develop Pakistani capital market on sound and sustainable footing.

This is the first study that uses an extended number of variables and discovers financial behavior of firms in a bank-based economy having limited financing options, and facing erratic economic conditions.

The purpose of this study is to explain the adjustment rate made to target capital structures by listed non-financial firms in Pakistan during the courses of their life cycles and to determine what factors influence their adjustment rates.

The study used multivariate analysis to classify 39 years (1972-2010) of unbalanced panel data from listed non-financial Pakistani firms in terms of their growth, maturity and decline stages. Further, it used a fixed-effects panel data model to determine the factors that influence capital structure and adjustment rates during the life-cycle stages of firms.

The study observed a low–high–low leverage pattern during the growth, maturity and decline stages of businesses in line with tradeoff theory. Furthermore, the study observed an adjustment rate for growing firms of between 49.3-37.9 per cent, for mature firms of between 35.5-17.5 per cent and for declining firms of between 22.2-15.1 per cent toward their respective leverage targets. Furthermore, it was found that growing firms have higher leverage adjustment rates because, by having more investment opportunities, these firms can alter their capital structures easily by changing the composition of their new issues.

Erratic economic conditions in Pakistan have created an uncertain business environment. Therefore, even mature Pakistani firms remain skeptical about the sustainability of positive trends among current economic indicators. Furthermore, to avoid uncertainty, Pakistani firms grab short-term opportunities by using quickly available short-term debt as a main financing source. Government should introduce long-term policies that will stabilize the business environment and strengthen the financial, as well as the judicial, institutions of the country so that these firms may benefit from long-term investment opportunities and access more options for raising external financing. The results of this study will also help policymakers for other Asian economies where the capital markets are underdeveloped and where firms have higher leverage ratios, such as Thailand, Indonesia and Malaysia.

This is the first study in Pakistan that has used a multivariate approach to classify firms into their different life-cycle stages and to discover the leverage adjustment rates of firms during those life-cycle stages.

This paper aims to seek answers to a primary question: “How much do divergent leverage factors account for fluctuations in time-varying financial leverage in leading hospitality sub-sectors decomposed by four exclusive sub-portfolios?” In the path of seeking answers, this paper investigated the effects of both firm-specific and macroeconomic indicators to firms’ varying financial leverage in those primary sub-sectors overtime.

In each sub-sector portfolios, firms were sorted based on market-to-book values (Mktbk _it ) with median breakpoint percentiles. For hypothesis testing, this paper constructed panel regression models with firm fixed-effects to layout fluctuant financial leverage phenomenon engaged with a set of 11 leverage factors in each Mktbk _it sorted sub-sector portfolios.

Results exhibited assorted evidences. The bottom line was: firms with different market capitalization rates in each portfolio acted differently in regard to the magnitude of financial leverage across time.

The final sample of 415 firms in four sub-sector portfolios sufficiently embraced financial leverage composition in the hospitality industry across time. However, by reason of lack of data in the other intra-hospitality industries, such as gaming and/or cruise lines, findings did not represent the firms operated in those sub-industries.

This paper departed from the established context of the previous literature in the manner that it expects to add to the literature by demonstrating the core drivers causing the deviations in financial structure in four exclusive, hospitality industry sub-sector portfolios with varying leverage proxies overtime.

This study aims to examine the impact of sustainable practices as proxied by the environmental, social and governance (ESG) score on capital structure. It also investigates whether ESG performance influences the speed of adjustment (SOA) to target leverage in firms.

The sample covers 116 non-financial firms listed on the main stock exchanges from five Southeast ASEAN countries (Bursa Malaysia, Indonesia Stock Exchange, Philippines Stock Exchange, Singapore Stock Exchange and Stock Exchange of Thailand) over the period 2012–2019. The study adopts the OLS regression and system-GMM estimators to perform the data analysis.

The authors show that the ESG score is positively associated with book leverage, suggesting that firms increase their debt capital through sustainable practices. However, they find that the ESG score is negatively associated with market leverage across our model estimations. The authors also reveal that environmental, social and governance pillar scores produce about 7.82%, 2.88% and 0.47% SOAs, respectively, higher than the SOA of the traditional SOA without the ESG factor. The aggregate ESG score has about 3.41% SOA higher than the baseline SOA without the ESG factor.

This study is of interest to investors, corporate firms and policymakers. The study demonstrates that the ESG score increases the firm’s SOA to target leverage. By disaggregating the ESG score, the authors establish that ESG pillar scores produce higher SOAs than the traditional SOA (without ESG), with the environmental score inducing the fastest SOA. Practically, the study implies that environmentally sustainable activities reduce environmental transaction costs, benefit firms through better information transparency and enhance a trustful climate between the firm and suppliers of capital. Therefore, this study demonstrates that firms do not only incur the cost of disseminating ESG information but also benefit from lower information asymmetry and a higher SOA with better tax-deductible advantages.

The findings have combined advantages for both stakeholders and directors who monitor and manage the firms’ resources to improve the quality of ESG practices and initiatives.

To the best of the authors’ knowledge, this study is among the first to establish that sustainable practices induce higher debt capital. Secondly, unlike prior research focusing on the cost of capital, the authors examine whether ESG performance affects capital structure patterns. Thirdly, it documents the extent to which sustainable practices influence the SOA towards target leverage in firms. The authors contribute to corporate finance literature that firms reach faster to their target leverage in the presence of ESG performance. Theoretically, through the notion of the stakeholder proposition, the study establishes that the firms’ pursuance of stakeholder goals further enhances the prediction of the trade-off theory.