| dc.description.abstract | The purpose of this thesis is to investigate whether capital structure has an effect on stock
returns, and if existing theories can explain a potential relationship. We gather data for
firms listed on the Oslo Stock Exchange in the period 1990 - 2020. This includes 2910
observations distributed among 331 unique firms.
There are different theories regarding the topic, and previous empirical research has
yielded contradictory results. Previous research about capital structure in the context of
the Norwegian market is scarce, making it especially interesting to study.
This thesis explores the relationship between debt ratio and expected stock returns using
a Fama-Macbeth two-step regression and a fixed-effects model. We include several control
variables, which prior studies have found to affect stock returns. We find a statistically
negative relationship between expected stock returns and the leverage level.
According to our results, investors are not being rewarded for the extra risk associated
with debt financing, and the average firm does not optimize their capital structure if the
goal is to maximize the share price. | |
