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For every dollar of equity, Johnson & Johnson has only $0.11 of long-term debt and total debt of $0.15. When we examine the industry and sector averages, the differences are again apparent. The choice of capital structure is a management decision, but clearly it is also influenced by industry characteristics.

financial distress costs undoubtedly supplies part of the reason, but, to date, there is no fully satisfactory theory that explains these regularities in capital structures.

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