How does uncertainty influence target capital structure?

Hyun Joong Im, Ya Kang, Janghoon Shon

Research output: Contribution to journalArticlepeer-review

38 Scopus citations


This study investigates how uncertainty affects firms’ target capital structure using a panel data set of U.S. public manufacturers between 2003 and 2018 and finds that high-uncertainty firms have 10.1 (8.1) percentage points lower mean book (market) targets than low-uncertainty firms. This study also shows that the uncertainty effect on leverage targets is greater than the impact of firm size, market-to-book ratio, assets tangibility, R&D intensity, and industry median leverage, making uncertainty the most critical among all time-varying determinants of leverage targets. Further, this study finds that heightened uncertainty decreases debt tax shields, increases potential financial distress costs, and exacerbates debtholder–shareholder conflicts, thereby leading to a lower optimal or target leverage ratio.

Original languageEnglish
Article number101642
JournalJournal of Corporate Finance
StatePublished - Oct 2020


  • Asset volatility
  • Capital structure
  • Target leverage
  • Uncertainty


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