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We study 6,083 European firms that were acquired between 1999 and 2015. Soon after the acquisition, the acquired firms promptly and substantially close the gap between their actual leverage ratios and their target (optimal) ratios. Firms that were over- (under-) leveraged at the start of their acquisition year move their debt-to-assets ratio from 34.1% to 20% (10% to 18.5%) by the end of the following year. Under-leveraged firms expand their assets rapidly following acquisition, as they gain improved access to investable resources. Our results are consistent with the trade-off theory of capital structure and with the existence of firm-specific target leverage ratios. [ABSTRACT FROM AUTHOR]

Government bonds might provide reference entities that reduce corporate bond yields. We study China's 2017 issuance of two U.S. dollar (USD)-denominated sovereign bonds when there were (effectively) no outstanding USD sovereigns. We find that Chinese corporate USD bonds experienced a four- to nine-basis-point decline in yield spreads, whereas corporate renminbi (RMB) bonds did not. The effect was stronger for corporate bonds with maturities similar to those of the USD sovereigns. Further consistent with the reference effect, USD-denominated corporate bonds experienced declines in bid-ask spreads and volatility; corporate bond yield spread changes became more sensitive to sovereign yield innovations; and the less-informed foreign mutual funds significantly increased their holdings of offshore USD Chinese corporate bonds. Limited evidence indicates that new corporate bond maturities shifted toward the sovereign bonds' maturity after their issuance. This paper was accepted by Lukas Schmid, finance. Funding: B. Wang received financial support from Hong Kong Institute for Monetary Research. C. Y. Hong received financial support from the National Natural Science Foundation of China [Grant 72003125]. Supplemental Material: The internet appendix and data are available at https://doi.org/10.1287/mnsc.2022.4499. [ABSTRACT FROM AUTHOR]

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jfineco.2005.03.004 Byline: Mark J. Flannery (a), Kasturi P. Rangan (b) Keywords: Leverage; Tradeoff theory; Target; Speed of adjustment Abstract: The empirical literature provides conflicting assessments about how firms choose their capital structures. Distinguishing among the three main hypotheses ('tradeoff', pecking order, and market timing) requires that we know whether firms have long-run leverage targets and (if so) how quickly they adjust toward them. Yet many previous researchers have applied empirical specifications that fail to recognize the potential for incomplete adjustment. A more general, partial-adjustment model of firm leverage indicates that firms do have target capital structures. The typical firm closes about one-third of the gap between its actual and its target debt ratios each year. Author Affiliation: (a) Graduate School of Business, University of Florida, Gainesville, FL 32611-7168, USA (b) Weatherhead School of Management, Case Western Reserve University, Cleveland, OH 44106, USA Article History: Received 12 May 2004; Revised 21 December 2004; Accepted 16 March 2005 Article Note: (footnote) [star] We would like to thank, without implicating, Jay Ritter, Artuno Bris, Ralf Elsas, Vidhan Goyal, Rongbing Huang, Mike Lemmon, Peter MacKay, Sam Thomas, Ivo Welch, Jeff Wurgler, and seminar participants at Arizona State University, the Atlanta Finance Forum, Case Western Reserve University, the Federal Deposit Insurance Corporation, George Mason University, New York University, Southern Methodist University, the University of Texas, and Washington University for comments on previous drafts of this paper. Murray Frank (the referee) provided advice that substantially improved the paper. George Pennacchi and Ajai Singh provided helpful advice about a related paper.

Market evidence, which indicate the banking firmsE asset opaqueness, is discussed. Empirical tests evolve the stock's market microstructure properties and the ability of analysts to forecast firm earnings.