Graham and Leary (2011)


Graham, John, and Mark Leary.  "A Review of Empirical Capital Structure Research and Directions for the Future."

Annual Review of Financial Economics, October 24, 2011.

From the authors' abstract:  "This paper reviews empirical capital structure research, concentrating on papers published since 2005. We begin by documenting three dimensions of capital structure variation: cross-firm, cross-industry, and within-firm through time. We summarize how well the traditional trade-off and pecking order approaches explain these sources of variation and highlight their empirical shortcomings...  [Many papers touch on] the following broad themes: i) Important variables have been mis-measured in empirical tests, ii) The impact of leverage on non-financial stakeholders is important, iii) The supply side of capital affects corporate capital structure, iv) Richer features of financial contracts have been under-researched, v) Value effects due to capital structure appear to be modest over wide ranges of leverage, vi) Estimates of leverage adjustment speeds are biased, vii) Capital structure dynamics have not been adequately considered. Much progress has been made addressing these issues, some of which has led to the study of an expanded range of capital structure topics, including debt maturity, loan and covenant characteristics, collateral effects, and alternative financing sources such as leasing and credit lines. We conclude by summarizing unanswered questions and areas for future research."

LK comment:  One persistent finding in the ESG literature is that high ESG / socially responsible firms have less financial leverage comparable firms with lower ESG ratings.  This is a longstanding effect that hasn't been extensively studied, but see DiBartolomeo (2010).  See also Myers (1984).