The impact of market sentiment on capital structures in the USA

Oliver, Barry R. (2010) The impact of market sentiment on capital structures in the USA. International Journal of Behavioural Accounting and Finance, 1 4: 335-348. doi:10.1504/IJBAF.2010.032846

Author Oliver, Barry R.
Title The impact of market sentiment on capital structures in the USA
Journal name International Journal of Behavioural Accounting and Finance   Check publisher's open access policy
ISSN 1753-1977
Publication date 2010
Sub-type Article (original research)
DOI 10.1504/IJBAF.2010.032846
Volume 1
Issue 4
Start page 335
End page 348
Place of publication Olney, Bucks., United Kingdom
Publisher Inderscience Publishers
Language eng
Abstract This paper represents one of the first studies to document an empirical relation between market sentiment and capital structure in the USA. In a sample of US firms we find that market sentiment as proxied by the University of Michigan Consumer Sentiment Index is pervasive and significant in explaining firm financing decisions, both in the long and short terms. When market sentiment is higher firms in the following year have higher levels of debt. This result is robust to different regression models, different model specifications, as well as different calculations of sentiment and sample selection. The results confirm that the general level of optimism/pessimism in society affects financial decisions and leads to market wide phenomenon. This provides some support to the existing literature that overconfident managers use relatively more debt in a firm's capital structure. Market-to-book is found to be a significant determinant of capital structure as documented by previous studies. Evidence of persistence of long-past market-to-book ratios was shown to be not very robust.
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: UQ Business School Publications
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Created: Tue, 19 Mar 2013, 12:51:53 EST by Karen Morgan on behalf of UQ Business School