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The dynamics of capital structure in transition economies

  • Nivorozhkin, Eugene

    ()

    (BOFIT)

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    This paper uses a dynamic unrestricted capital structure model to examine the determinants of the private companies’ target financial leverage and the speed of adjustment to it in two transition economies, the Czech Republic and Bulgaria. We explicitly model the adjustment of companies’ leverage to a target leverage, and this target leverage is itself explained by a set of factors. The panel data methodology combines cross-section and time-series information. The results indicate that the Bulgarian corporate credit markets were less supply-constrained than those of the Czech Republic during the period under investigation. Bulgarian companies adjusted much faster to the target leverage than Czech firms. The speed of adjustment related positively to the distance between target and observed ratio for Bulgarian companies while the relationship was neutral for Czech companies. The conservative policies of Czech banks and the exposure control were likely responsible for the slower adjustment among the larger companies while the opposite were true for Bulgarian banks and companies.

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    File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/dp0203.pdf
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    Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 2/2003.

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    Length: 35 pages
    Date of creation: 04 Feb 2003
    Date of revision:
    Handle: RePEc:hhs:bofitp:2003_002
    Contact details of provider: Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
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    Web page: http://www.suomenpankki.fi/bofit_en/
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    1. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    2. Sanford Grossman & Oliver Hart, . "Corporate Financial Structure and Managerial Incentives," Rodney L. White Center for Financial Research Working Papers 21-79, Wharton School Rodney L. White Center for Financial Research.
    3. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
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    6. Friend, Irwin & Lang, Larry H P, 1988. " An Empirical Test of the Impact of Managerial Self-interest on Corporate Capital Structure," Journal of Finance, American Finance Association, vol. 43(2), pages 271-81, June.
    7. Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc.
    8. Guedes, Jose & Opler, Tim, 1996. " The Determinants of the Maturity of Corporate Debt Issues," Journal of Finance, American Finance Association, vol. 51(5), pages 1809-33, December.
    9. Cornelli, F. & Portes, R. & Schaffer, M., 1996. "The Capital Structure of Firms in Central and Eastern Europe," DELTA Working Papers 96-05, DELTA (Ecole normale supérieure).
    10. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    11. Jalilvand, Abolhassan & Harris, Robert S, 1984. " Corporate Behavior in Adjusting to Capital Structure and Dividend Targets: An Econometric Study," Journal of Finance, American Finance Association, vol. 39(1), pages 127-45, March.
    12. Williamson, Oliver E, 1981. "The Modern Corporation: Origins, Evolution, Attributes," Journal of Economic Literature, American Economic Association, vol. 19(4), pages 1537-68, December.
    13. Qaizar Hussain & Eugeniy Nivorozhkin, 1997. "The Capital Structure of Listed Companies in Poland," IMF Working Papers 97/175, International Monetary Fund.
    14. International Monetary Fund, 1999. "Bulgaria; Recent Economic Developments and Statistical Appendix," IMF Staff Country Reports 99/26, International Monetary Fund.
    15. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    16. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
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