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Market value and corporate debt: the 2006--2010 international evidence

Listed author(s):
  • A. Dell’Acqua
  • L. L. Etro
  • E. Teti
  • P. Barbalace

We analyse the differences in the financial debt level of firms both in market-oriented systems (the US, the UK) and bank-oriented systems (Germany, France and Italy) on a sample of 3360 listed companies between the period 2006 and 2010. Results indicate that the debt level is significantly higher in market-oriented systems when compared to the book value of equity. We find confirmation that Book-to-Market (BTM) cannot explain the debt level in bank-oriented systems but, contrary to reference literature, we observe that the BTM ratio has a negative influence on the debt level in market-oriented systems, especially in the United States. We claim different reasons to explain the evidence: (i) the financing standards of market-oriented countries, with an inflationary effect of market values on debt; (ii) an underlying activity for ownership protection and (iii) the unfavourable conditions of stock market over the years of the financial crisis that reduced the convenience of equity issuance.

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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 23 (2013)
Issue (Month): 6 (March)
Pages: 495-504

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Handle: RePEc:taf:apfiec:v:23:y:2013:i:6:p:495-504
DOI: 10.1080/09603107.2012.730129
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