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Is the Stability of Leverage Ratios Determined by the Stability of the Economy?

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  • Anastasiya Shamshur

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.

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Bibliographic Info

Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp393.

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Date of creation: Sep 2009
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Handle: RePEc:cer:papers:wp393

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Keywords: Capital Structure; Financing Decisions; Eastern Europe;

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References

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  1. Jan Hanousek & Jan Bena, 2006. "Rent Extraction by Large Shareholders: Evidence Using Dividend Policy in the Czech Republic," FMG Discussion Papers dp556, Financial Markets Group.
  2. Ralph Haas & Marga Peeters, 2006. "The dynamic adjustment towards target capital structures of firms in transition economies ," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(1), pages 133-169, 03.
  3. Omer Brav, 2009. "Access to Capital, Capital Structure, and the Funding of the Firm," Journal of Finance, American Finance Association, vol. 64(1), pages 263-308, 02.
  4. Mitchell A. Petersen, 2005. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," NBER Working Papers 11280, National Bureau of Economic Research, Inc.
  5. Delcoure, Natalya, 2007. "The determinants of capital structure in transitional economies," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 400-415.
  6. Nivorozhkin, Eugene, 2005. "Financing choices of firms in EU accession countries," Emerging Markets Review, Elsevier, vol. 6(2), pages 138-169, June.
  7. Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc.
  8. Karin Jõeveer, 2006. "Sources of capital structure : evidence from transition countries," Bank of Estonia Working Papers 2006-02, Bank of Estonia, revised 12 Nov 2006.
  9. Dries Heyman & Marc Deloof & Hubert Ooghe, 2008. "The Financial Structure of Private Held Belgian Firms," Small Business Economics, Springer, vol. 30(3), pages 301-313, March.
  10. Michael L. Lemmon & Michael R. Roberts & Jaime F. Zender, 2008. "Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure," Journal of Finance, American Finance Association, vol. 63(4), pages 1575-1608, 08.
  11. Jan Hanousek & Evzen Kocenda & Jan Svejnar, 2005. "Origin and Concentration: Corporate Ownership, Control and Performance," CERGE-EI Working Papers wp259, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  12. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
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Cited by:
  1. Paula Antão & Diana Bonfim, 2012. "The dynamics of capital structure decisions," Working Papers w201206, Banco de Portugal, Economics and Research Department.
  2. Mariya Hake, 2012. "Banking Sector Concentration and Firm Indebtedness: Evidence from Central and Eastern Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 48-68.
  3. Anastasiya Shamshur, 2010. "Access to Capital and Capital Structure of the Firm," CERGE-EI Working Papers wp429, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. Curtiss, Jarmila, 2012. "Determinants of Financial Capital Use: Review of theories and implications for rural businesses," Factor Markets Working Papers 123, Centre for European Policy Studies.

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