Using a sample of over 5,000 European firms, we document the driving factors of capital structure policies in Europe. Controlling for dynamic patterns and national environments, we show how these policies cannot be reduced to a simple trade-off or pecking order model. Both corporate governance and market timing impact upon capital structure. European firms limit themselves to an upper barrier to leverage, but not to a lower one. Debt constrains managers to payout cash, and equity may become cheap during windows of opportunity. Internal financing, when available, is preferred over external financing, but companies limit future excess of slack as it constitutes a potential source of conflict.
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Paper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number
rp152.
Find related papers by JEL classification: G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
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