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Firm Characteristics and Debt Ratio Analysis

This document outlines seven independent variables that may be related to a firm's debt ratio: (1) larger firm size is positively related to higher debt ratios; (2) higher capital intensity as measured by PP&E/TA is positively related; (3) greater R&D spending is negatively related; (4) higher profitability as measured by NI/TA is negatively related; (5) the relationship between MEQ/BEQ and debt ratios is uncertain; (6) larger tax loss carry forwards are negatively related; and (7) firms with no debt or very high past debt ratios may have different relationships with debt compared to other firms.

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neha paunikar
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5 views2 pages

Firm Characteristics and Debt Ratio Analysis

This document outlines seven independent variables that may be related to a firm's debt ratio: (1) larger firm size is positively related to higher debt ratios; (2) higher capital intensity as measured by PP&E/TA is positively related; (3) greater R&D spending is negatively related; (4) higher profitability as measured by NI/TA is negatively related; (5) the relationship between MEQ/BEQ and debt ratios is uncertain; (6) larger tax loss carry forwards are negatively related; and (7) firms with no debt or very high past debt ratios may have different relationships with debt compared to other firms.

Uploaded by

neha paunikar
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

Independent variable Relationship to Independent variable (policy

(firm characteristic debt ratio(+ or -) and decision variable)


variable)

1 firm size (lnTA)


+ past leverage

PP & E / TA +
2 Div. paid (last three years/ TA
(capital intensity)

3 R & D (last three years)/ TA - sales of common stock(last three


years)/ TA

4 NI (last three years)/ TA


- repurchase of common stock(last
three years)/ TA

change in non-debt current


5 MEQ/BEQ ? liabilities(last three years)/ TA

6 Tax loss carry forward /TA - DUMMY 2 = 1 if D/TA(three years


ago) is > 50%

7 DUMMY 1 = 1 if D/TA is 0
Relationship to
debt ratio(+ or -)

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