This chapter examines the empirical effects of financial leverage (FL) (corporate capital structure) on the market value of a selection of firms listed on the Australian Stock Exchange, developing a direct value-leverage model. Employing a least square dummy variable method to a pooled time-series and cross-sectional data set, the results suggest that the value of a firm rises significantly with FL. More specifically, there is a statistically significant positive effect of total, total interest bearing, and long-term FL on the market value of a firm, suggesting that leverage matters even under the Australia’s (full) dividend imputation tax system.
|Title of host publication||Advances In Quantitative Analysis Of Finance And Accounting|
|Place of Publication||United States|
|Publisher||World Scientific Publishing Co.|
|Number of pages||33|
|Publication status||Published - 1 Jan 2008|