Access to Capital, Capital Structure, and the Funding of the Firm
Based upon a large data set of public and private firms in the United Kingdom, I find that compared to their public counterparts, private firms rely almost exclusively on debt financing, have higher leverage ratios, and tend to avoid external capital markets, leading to a greater sensitivity of their capital structures to fluctuations in performance. I argue that these differences are due to private equity being more costly than public equity. I further examine the private firms subsample to show that private equity is more costly than its public counterpart due to information asymmetry and the desire to maintain control. Copyright (c) 2009 The American Finance Association.
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Volume (Year): 64 (2009)
Issue (Month): 1 (02)
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