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Dynamic Optimal Capital Structure and Technological Change

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  • Lööf, Hans

Abstract

This paper incorporates the cost of adjustment between observed and optimal leverage in explaining the variation in firm?s equity or bank-debt financing investments. Using a dynamic adjustment approach identifies the determinants to capital structure between different financial systems. In relation to firm sales U.K and U.S firms have 50-100 percent more equity financing than Swedish firms depending on which measure used, while the ratio of debt to sales is highest in Sweden. The major findings are that observed leverage often deviates from the target leverage in both equity and debt dominated systems. There are large and also unexpected crosscountry differences in determinants to optimal capital structure. Swedish and U.K. firms deviate more from the optimal level than U.S firms. A faster speed towards the target is observed in the equity based systems. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 03-06.

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Date of creation: 2003
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Handle: RePEc:zbw:zewdip:904

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Related research

Keywords: Capital structure; dynamic adjustment; panel data; optimal leverage; financial markets; cross-country comparison; technological change;

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References

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  1. Kumbhakar, Subal C. & Heshmati, Almas & Hjalmarsson, Lennart, 2000. "How Fast Do Banks Adjust? A Dynamic Model of Labor-Use with an Application to Swedish Banks," Working Paper Series in Economics and Finance 411, Stockholm School of Economics, revised Nov 2001.
  2. Bronwyn H. Hall, 2002. "The Financing of Research and Development," NBER Working Papers 8773, National Bureau of Economic Research, Inc.
  3. Assaf Razin & Efraim Sadka & Chi-Wa Yuen, 2001. "Why International Equity Inflows to Emerging Markets are Inefficient and Small Relative to International Debt Flows," NBER Working Papers 8659, National Bureau of Economic Research, Inc.
  4. Jayaratne, Jith & Strahan, Philip E, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 639-70, August.
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Cited by:
  1. R.T.A. de Haas & H.M.M. Peeters, 2004. "Firms' Dynamic Adjustment to Target Capital Structures in Transition Economies," Finance 0405014, EconWPA.
  2. Ralph de Haas & Marga Peeters, 2004. "The Dynamic Adjustment towards Target capital Structures of Firms in," DNB Staff Reports (discontinued) 123, Netherlands Central Bank.

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