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Supply of capital and capital structure: The role of financial development

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  • Antzoulatos, Angelos A.
  • Koufopoulos, Kostas
  • Lambrinoudakis, Costas
  • Tsiritakis, Emmanuel

Abstract

We explore the effect of financial development on corporate capital structure and the tightness of financial constraints that firms face. We employ an econometric technique that allows us to explicitly test for convergence in capital structure. This technique increases the power of our statistical tests. In doing so, we identify a group of convergent firms. The driving force of convergence is financial development, which positively affects the firms' leverage ratio. We also identify a group of firms, whose leverage is not affected by financial development, because they are financially constrained.

Suggested Citation

  • Antzoulatos, Angelos A. & Koufopoulos, Kostas & Lambrinoudakis, Costas & Tsiritakis, Emmanuel, 2016. "Supply of capital and capital structure: The role of financial development," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 166-195.
    • Handle: RePEc:eee:corfin:v:38:y:2016:i:c:p:166-195
    DOI: 10.1016/j.jcorpfin.2016.01.011
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    More about this item

    Keywords

    Capital structure; Convergence; Financial constraints; Financial development;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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