Is the Stability of Leverage Ratios Determined by the Stability of the Economy?
AbstractThe 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 InfoPaper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp393.
Date of creation: Sep 2009
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Capital Structure; Financing Decisions; Eastern Europe;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-07 (All new papers)
- NEP-BEC-2009-11-07 (Business Economics)
- NEP-CFN-2009-11-07 (Corporate Finance)
- NEP-TRA-2009-11-07 (Transition Economics)
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