Is there any economic reason that debt/equity is limited to between 0 and 9 as in the picture below?
This research examines the impact of the law on firms' financial flexibilities.
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asked Apr 15, 2021 at 22:39
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1$\begingroup$ May be the author wanted to discard outliers before calculating the mean. $\endgroup$– H2ONaClApr 15, 2021 at 23:03
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1 Answer
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When a company is in near-bankrupt state, it's equity $\rightarrow0$, meaning that D/E goes $\rightarrow\infty$. Including such observations would make the resulting mean D/E meaningless. This is why boundaries are needed
