{'fraction_non_alphanumeric': 0.019473081328751432, 'fraction_numerical': 0.009163802978235968, 'mean_word_length': 4.826666666666667, 'pattern_counts': {'":': 0, '<': 0, '<?xml version=': 0, '>': 0, 'https://': 0, 'lorem ipsum': 0, 'www.': 0, 'xml': 0}, 'pii_count': 0, 'substrings_counts': 0, 'word_list_counts': {'cursed_substrings.json': 0, 'profanity_word_list.json': 0, 'sexual_word_list.json': 0, 'zh_pornsignals.json': 0}}
THE DETERMINATION OF OPTIMAL CAPITAL STRUCTURE: THE EFFECT OF FIRM AND INDUSTRY DEBT RATIOS ON MARKET VALUE

DeAngelo and Masulis (1980) demonstrated that the presence of corporate tax shield substitutes for debt implies that each firm has a "unique interior optimum leverage decision..." Masulis (1983) argued further that when firms which issue debt are moving toward the industry average from below, the market will react more positively than when the firm is moving away from the industry average. We examine this hypothesis by classifying firms' leverage ratios as being above or below their industry average prior to announcing a new debt issue. We then test whether this has an effect on market returns for shareholders. Our overall finding is that the relationship between a firm's debt level and that of its industry does not appear to be of concern to the market.