Is the Stability of Leverage Ratios Determined by the Stability of the Economy?
CERGE-EI Working Paper Series No. 393
33 Pages Posted: 9 Nov 2009
Date Written: September 1, 2009
Abstract
The choice of capital structure by firms is a fundamental issue in financial literature. According to a recent finding, the capital structure of firms remains almost unchanged during their lives meaning that leverage ratios are significantly stable over time. The stability of leverage ratios is mainly generated by an unobserved firm-specific effect that is liable for the majority of variation in capital structure (Lemmon, Roberts, and Zender 2008). However, the study focuses on the US economy, which is relatively stable. I study how substantial changes in the economy affect the stability of firms' capital structure in transition countries. Specifically, I concentrate on Central and Eastern European economies that passed through transition from central planning to a market economy and privatization, the Russian financial crisis, and EU membership. In addition, I investigate whether the ownership structure of firms is responsible for the part of the unexplained variation in leverage.
Keywords: Capital Structure, Financing Decisions, Eastern Europe
JEL Classification: G32, C23
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
What Do We Know About Capital Structure? Some Evidence from International Data
By Raghuram G. Rajan and Luigi Zingales
-
The Theory and Practice of Corporate Finance: Evidence from the Field
By John R. Graham and Campbell R. Harvey
-
The Theory and Practice of Corporate Finance: The Data
By John R. Graham and Campbell R. Harvey
-
Market Timing and Capital Structure
By Malcolm P. Baker and Jeffrey Wurgler
-
Market Timing and Capital Structure
By Malcolm P. Baker and Jeffrey Wurgler
-
Testing Tradeoff and Pecking Order Predictions About Dividends and Debt
By Eugene F. Fama and Kenneth R. French
-
Testing Static Trade-Off Against Pecking Order Models of Capital Structure
-
Optimal Capital Structure Under Corporate and Personal Taxation
By Harry Deangelo and Ronald W. Masulis