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The Determinants of Corporate Leverage: A Panel Data Analysis

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  • Geoffrey Shuetrim

    (Reserve Bank of Australia)

  • Philip Lowe

    (Reserve Bank of Australia)

  • Steve Morling

    (Reserve Bank of Australia)

Abstract

Widespread increases in corporate leverage occurred over the 1980s in Australia. There was also considerable variation in leverage across firms. This paper uses a sample of 209 firms, observed annually between 1973 and 1991, to explore both cross-sectional and time variation in financial structure. The paper begins with a survey of the literature on corporate financial structure. This leads to a model that incorporates the major determinants of leverage. The empirical model takes into account the influence of both firm-specific and time-specific effects. The dynamics of leverage are also tentatively explored. The results suggest that a number of firm-related factors influence the relative costs of debt, the level of demand for and the availability of funds. Most important among these are firm size, growth, collateral and cash flow. A number of macro-economic variables are also found to influence leverage. Most important among these are real asset prices which play a significant role in the post-financial deregulation period.

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Bibliographic Info

Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9313.

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Date of creation: Dec 1993
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Handle: RePEc:rba:rbardp:rdp9313

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  18. Frederick T. Furlong, 1990. "Tax incentives for corporate leverage in the 1980s," Economic Review, Federal Reserve Bank of San Francisco, issue Fall, pages 3-17.
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Cited by:
  1. Malcolm Edey & John Romalis, 1996. "Issues in Modelling Monetary Policy," RBA Research Discussion Papers rdp9604, Reserve Bank of Australia.
  2. Karen Mills & Steven Morling & Warren Tease, 1994. "The Influence of Financial Factors on Corporate Investment," RBA Research Discussion Papers rdp9402, Reserve Bank of Australia.
  3. Bülent, Köksal & Cüneyt, Orman & Arif, Oduncu, 2013. "Determinants of Capital Structure: Evidence from a Major Emerging Market Economy," MPRA Paper 48415, University Library of Munich, Germany.
  4. Gianni La Cava, 2005. "Financial Constraints, the User Cost of Capital and Corporate Investment in Australia," RBA Research Discussion Papers rdp2005-12, Reserve Bank of Australia.
  5. Andreas Stephan & Oleksandr Talavera, . "Effects of macroeconomic uncertainty on leverage for US non-financial firms," German Stata Users' Group Meetings 2004 8, Stata Users Group.
  6. Dimiter Rafailov, 2003. "Determinants of the capital structure of the Bulgarian firms," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 47-65.

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