Validation of Capital Structure Models in the Light of Trade-Off Theory: The Case of S&P 500 Companies (Studia i Prace Kolegium Zarządzania i Finansów / Szkoła Główna Handlowa)

Summary

• The study covers 418 S&P 500 companies and their financial statements from 1998–2022, with six ratios derived from them.p.7
• Coefficients of variation for DER range from 196% to 8277%.p.8
• The Spearman correlation between DER and Structure of Assets is -0.63, the strongest of the five variables.p.12
• The linear regression has an R-squared of 0.000166, so it explains practically none of the variation in DER.p.13
• The F-test p-value of 0.905594 indicates the chosen variables are inadequate.p.13

Key insights

1. The study extends an earlier analysis by testing its conclusions on a much longer and more recent period.p.3
2. DER is defined as Total Liabilities divided by Total Equity.p.7
3. The data comprise 417 units over 25 periods, a panel structure the earlier article did not use.p.12
4. The RESET specification test returns a p-value of 0.92, so the functional form is acceptably specified.p.14
5. None of the variables significantly affects DER in the pooled, fixed-effects or random-effects models.p.15