Firms' Dynamic Adjustment to Target Capital Structures in Transition Economies
AbstractWe study the capital structure dynamics of Central and Eastern European firms in order to get a better understanding of the quantitative and qualitative development of the financial systems in this region. The dynamic model we use endogenizes the target leverage as well as the adjustment speed and is applied to microeconomic data for ten countries. We find that during the transition process firms generally increased their leverage, lowering the gap between actual and target leverage. Profitability and age are the most robust determinants of 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 EconWPA in its series Finance with number 0405014.
Length: 37 pages
Date of creation: 10 May 2004
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capital structure dynamics; transition economies; financial system development;
Other versions of this item:
- R.T.A. de Haas & H.M.M. Peeters, 2004. "Firms' dynamic adjustment to target capital structures in transition economies," WO Research Memoranda (discontinued) 761, Netherlands Central Bank, Research Department.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-05-26 (All new papers)
- NEP-CFN-2004-05-16 (Corporate Finance)
- NEP-EEC-2004-05-16 (European Economics)
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