Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure

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Abstract
We examine the evolution of corporate capital structures and find that little of the variation in leverage is captured by previously identified determinants, such as size, market-to-book, profitability, industry, etc. Instead, the majority of variation in leverage ratios is driven by an unobserved time-invariant effect that generates surprisingly stable capital structures: High (low) levered firms tend to remain as such for over two decades. Additionally, this feature of leverage is robust to firm exit, is present prior to the IPO, and is largely unaffected by the process of going public, suggesting that variation in capital structures is primarily explained by factors that remain relatively stable for long periods of time.

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