According to the empirical evidence, which of the following statements about capital structure is true?
A)Most firms tend to target a capital structure that is 40% debt and 60% equity.
B)Most of the changes in capital structure is the result of an attempt to time the market by management.
C)Slightly less than half of the changes in the capital structures of publicly traded, U.S. firms can be explained by changes in the value of their stock.
D)Managers typically target an optimal capital structure and react relatively quickly to adjust their firm's capital structure if market forces change it.

Question

Quizplus · Accepted Answer

DC) Empirical evidence suggests that changes in a firm's capital structure are significantly influenced by changes in the value of its stock. This is because the market value of equity can fluctuate, affecting the debt-to-equity ratio.D) Research indicates that managers often have a target capital structure in mind, which is considered optimal for the firm. They tend to make adjustments to the capital structure in response to changes in market conditions to maintain or move towards this target.

According to the Empirical Evidence, Which of the Following Statements