The Existence and Calculation of Optimal Capital Structure: an Application of Panel Smooth Transition Regression on Taiwan 50

10.6292/AFPF.2015.06.09

Yu-Ko Huang；Ginny Ju-Ann Yang；Chen-Hsun Lee

Panel Smooth Transition Regression ； Capital Structure ； Trade-Off Theory ； Cross-Sectional Data

Advances in Financial Planning and Forecasting

6期（2015 / 02 / 01）

211 - 231

英文

This study investigated the nonlinear relationship between the firm's market value and capital structure of 37 non-financial companies in the top 50 corporations in Taiwan as denominated by Taiwan 50. Using panel smooth transition regression (PSTR), we conducted empirical analysis on quarterly data from the selected 37 corporations which are considered most information symmetric from 2003 Q1 to 2010 Q4.Our results revealed an optimal capital structure, and thus the threshold value of transition variable capital structure pertaining to the maximum firm's market value of the sample companies, whose capital structures conform to predictions based on the capital structure theories of the trade-off theory and the signal factor hypothesis (Chou, Yang, & Lee, 2011). In addition, firm's market value and capital structure presented a nonlinear relationship in the form of an inverted U. At 29.87 %, the optimal capital structure maximized firm's market value.

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