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The Response of Firms' Leverage to Risk: Evidence from UK Public versus Non-Public ManufacturingFirms

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  • Mustafa Caglayan
  • Abdul Rashid

Abstract

This paper empirically investigates the effects of macroeconomic and firm-specific risk on firms' leverage. The analysis is carried out for a large panel of public and non-public UK manufacturing firms over the period 1999-2008. Our investigation provides evidence that UK manufacturing firms use less short-term debt during periods of high risk. However, the leverage of non-public manufacturing firms is more sensitive to firm-specific risk in comparison to their public counterparts while macroeconomic risk affects both types of firms similarly. Our investigation also shows that firms with high liquid assets reduce their leverage more (less) during periods of heightened firm-specific (macroeconomic) risk.

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Paper provided by Centre for Finance and Investment, Heriot Watt University in its series CFI Discussion Papers with number 1302.

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Date of creation: 2013
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Handle: RePEc:hwe:cfidps:1302

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