The dynamic adjustment towards target capital structures of firms in transition economies
AbstractThis paper studies the capital structure dynamics of central and eastern European firms to better understand the quantitative and qualitative development of financial systems in this region. The dynamic model used endogenises the target leverage as well as the adjustment speed towards these targets. It is applied to microeconomic data for 10 countries. We find that during the transition process firms generally increased their leverage, lowering the gap between actual and target leverage. Profitability and age of firms are the most robust determinants of their capital structure targets. Older firms attract more bank debt, whereas profitability decreases firms’ leverage targets. While banking system development has in general enabled firms to get closer to their leverage targets, information asymmetries between firms and banks are still important. As a result, firms prefer internal finance above bank debt (pecking order behaviour) and adjust leverage only slowly.
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Bibliographic InfoPaper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 87.
Length: 34 pages
Date of creation: Jul 2004
Date of revision:
Publication status: Published in De Haas, R.T.A. and H.M.M. Peeters (2006), The dynamic adjustment towards target capital structures of firms in transition economies, Economics of Transition,14(1), 133-169.
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Web page: http://www.ebrd.com/pages/research/publications/workingpapers.shtml
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capital structure dynamics; transition economies; financial system development;
Other versions of this item:
- 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.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
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