The effects of profitability and market performance on corporate financing behavior: a quantile regression approach

Abstract

Profitability and market performance have been widely perceived in the literature as the decisive determinants of corporate financing behavior, yet the evidence in support of the hypothesis of capital structure theory is inconclusive. To reexamine the state of affairs, this paper employs the novel concept of “dual issues” rather than one issue either by debt or by equity in corporate financing behavior, and then applies the quantile regression analysis to avoid possible inaccuracies arising from the ordinary least squares. The findings show that the quantile regression approach offers a comprehensive explanation for the marginal effect of profitability and market performance on corporate debt ratio at a certain quantile.

Keywords and phrases:

• Financing behavior
• quantile regression