The Most Valuable Companies Possess Optimal Capital

[[abstract]]In this paper, we use the unit root test at both panel level and individual company, in order to provide some quantitative evidence of the individual and common financial behavior of Taiwan 50 listed nonfinancial companies' debt-to-assets ratio. Our approach is based on the idea that conventional unit root tests have lower power in detecting the nonlinear mean reverting behavior if the debt ratios follow a nonlinear mean reversion process and fail to deal with the cross dependence problem. Hence, we use the non-linear panel unit root test of Hardi and Rao (2008) to reflect structural change and capture the mean reverting property of debt ratios in the non-financial companies of the Taiwan 50. Due to the cross-sectional dependency of this approach, the nuisance parameter problem is solved. Using the panel unit root test of Hardi and Rao (2008), the Taiwan 50 non-financial firms provide evidence to support the static trade off theory and signal factor hypothesis, which states that information symmetry implies optimal capital structure