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Financial Pressure and Balance Sheet Adjustment by UK Firms

  • Andrew Benito

    ()

    (Banco de España)

  • Garry Young

    ()

    (Bank of England)

This paper examines the financial policies and balance sheet adjustment of companies. Using a large panel of quoted UK firms, we estimate models for dividends, new equity issuance and investment, relating them to debt adjustment. The results suggest that while dividends are sticky in the short run, they are an important means of balance sheet adjustment in the long run. Other evidence supports the idea that companies actively target their balance sheet by variation in dividends, new equity issues and investment. There is evidence for financial pressure effects of debt-servicing costs on investment and dividends but not new equity issuance.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/02/Fic/dt0209e.pdf
File Function: First version, April 2002
Download Restriction: no

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0209.

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Length: 39 pages
Date of creation: Apr 2002
Date of revision:
Handle: RePEc:bde:wpaper:0209
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