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Financial Pressure and Balance Sheet Adjustment by UK Firms

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  • Andrew Benito

    ()
    (Banco de España)

  • Garry Young

    ()
    (Bank of England)

Abstract

This paper examines the financial policies and balance sheet adjustment of companies. Using a large panel of quoted UK firms, we estimate models for dividends, new equity issuance and investment, relating them to debt adjustment. The results suggest that while dividends are sticky in the short run, they are an important means of balance sheet adjustment in the long run. Other evidence supports the idea that companies actively target their balance sheet by variation in dividends, new equity issues and investment. There is evidence for financial pressure effects of debt-servicing costs on investment and dividends but not new equity issuance.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/02/Fic/dt0209e.pdf
File Function: First version, April 2002
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0209.

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Length: 39 pages
Date of creation: Apr 2002
Date of revision:
Handle: RePEc:bde:wpaper:0209

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Keywords: Financial pressure; dividends; equity issues; debt; investment; company panel data;

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References

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  4. Andrew Benito & Garry Young, 2001. "Hard Times or Great Expectations?: Dividend omissions and dividend cuts by UK firms," Bank of England working papers 147, Bank of England.
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Cited by:
  1. von Kalckreuth, Ulf & Chirinko, Robert S. & Breitung, Jörg, 2003. "A Vectorautoregressive Investment Model (VIM) and Monetary Policy Transmission: Panel Evidence from German Firms," Discussion Paper Series 1: Economic Studies 2003,06, Deutsche Bundesbank, Research Centre.
  2. Peter Gibbard & Ibrahim Stevens, 2011. "Corporate debt and financial balance sheet adjustment: a comparison of the United States, the United Kingdom, France and Germany," Annals of Finance, Springer, vol. 7(1), pages 95-118, February.
  3. Alberto Jaramillo & Hermilson Velásquez & Javier Santiago Ortiz & Natalia Serna, 2003. "Aspectos teóricos y empíricos de la relación empresas bancos," DOCUMENTOS DE TRABAJO CIEF 003922, UNIVERSIDAD EAFIT.
  4. Andrew Benito & John Whitley, 2003. "Implicit interest rates and corporate balance sheets: an analysis using aggregate and disaggregated UK data," Bank of England working papers 193, Bank of England.
  5. Hernando, Ignacio & Martínez-Carrascal, Carmen, 2008. "The impact of financial variables on firms' real decisions: Evidence from Spanish firm-level data," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 543-561, March.
  6. Andrew Benito, 2002. "Financial pressure, monetary policy effects and inventory adjustment by UK and Spanish firms," Banco de Espa�a Working Papers 0226, Banco de Espa�a.
  7. Philip Bunn & Garry Young, 2004. "Corporate capital structure in the United Kingdom: determinants and adjustment," Bank of England working papers 226, Bank of England.
  8. Marie Diron & Maria Cruz Manzano & Thomas Westermann, 2005. "Forecasting aggregate investment in the euro area: do indicators of financial conditions help?," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 206-27 Bank for International Settlements.
  9. Andrew Benito, 2003. "The capital structure decisions of firms: is there a pecking order?," Banco de Espa�a Working Papers 0310, Banco de Espa�a.
  10. Philip Bunn & Kamakshya Trivedi, 2005. "Corporate expenditures and pension contributions: evidence from UK company accounts," Bank of England working papers 276, Bank of England.
  11. Albert Jaeger, 2003. "Corporate Balance Sheet Restructuring and Investment in the Euro Area," IMF Working Papers 03/117, International Monetary Fund.
  12. Andrew Benito, 2003. "The incidence and persistence of dividend omissions by Spanish firms," Banco de Espa�a Working Papers 0303, Banco de Espa�a.
  13. Ignacio Hernando & Carmen Martínez-Carrascal, 2003. "The impact of financial variables on firms' real decisions: evidence from Spanish firm-level data," Banco de Espa�a Working Papers 0319, Banco de Espa�a.
  14. Andrew Benito & Ignacio Hernando, 2002. "Extricate: Financial Pressure and Firm Behaviour in Spain," Banco de Espa�a Working Papers 0227, Banco de Espa�a.

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