Profitability And Capital Structure Of Amex And Nyse Firms

Abstract

In this study, we found that NYSE and AMEX firms have somewhat different capital structures. NYSE firms generally use 5% to 8% more debt financing in their capital structures than AMEX firms. It was also found that the amount of debt in the capital structures of AMEX firms declined somewhat between 1985 and 2003 but remained relatively stable for NYSE firms. Also, NYSE firms were found to exhibit a strong inverse relationship between firm profitability and the amount on debt in the firm’s capital structure. This result is generally consistent with Myers and Majluf’s “asymmetric information theory” of capital structure. No relationship was found between profitability and capital structure for AMEX firms. Comparison of these results to similar calculations found in Fosberg and Ghosh (2005) for NASDAQ firms shows that, like AMEX firms, NASDAQ firms use less debt in their capital structures than NYSE firms and exhibit no relationship between profitability and capital structure. Consequently, because these anomalies exist for both AMEX and NASDAQ firms, these two anomalies can not be an exchange listing effect.

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