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The Determinants of Corporate Leverage: A Panel Data Analysis

  • Geoffrey Shuetrim

    (Reserve Bank of Australia)

  • Philip Lowe

    (Reserve Bank of Australia)

  • Steve Morling

    (Reserve Bank of Australia)

Widespread increases in corporate leverage occurred over the 1980s in Australia. There was also considerable variation in leverage across firms. This paper uses a sample of 209 firms, observed annually between 1973 and 1991, to explore both cross-sectional and time variation in financial structure. The paper begins with a survey of the literature on corporate financial structure. This leads to a model that incorporates the major determinants of leverage. The empirical model takes into account the influence of both firm-specific and time-specific effects. The dynamics of leverage are also tentatively explored. The results suggest that a number of firm-related factors influence the relative costs of debt, the level of demand for and the availability of funds. Most important among these are firm size, growth, collateral and cash flow. A number of macro-economic variables are also found to influence leverage. Most important among these are real asset prices which play a significant role in the post-financial deregulation period.

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Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9313.

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Date of creation: Dec 1993
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Handle: RePEc:rba:rbardp:rdp9313
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  18. Ang, James S & Chua, Jess H & McConnell, John J, 1982. " The Administrative Costs of Corporate Bankruptcy: A Note," Journal of Finance, American Finance Association, vol. 37(1), pages 219-26, March.
  19. D. E. Allen, 1991. "The Determinants of the Capital Structure of Listed Australian Companies: The Financial Manager's Perspective," Australian Journal of Management, Australian School of Business, vol. 16(2), pages 103-128, December.
  20. Bradley, Michael & Jarrell, Gregg A & Kim, E Han, 1984. " On the Existence of an Optimal Capital Structure: Theory and Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 857-78, July.
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  23. Amihud, Yakov & Lev, Baruch & Travlos, Nickolaos G, 1990. " Corporate Control and the Choice of Investment Financing: The Case of Corporate Acquisitions," Journal of Finance, American Finance Association, vol. 45(2), pages 603-16, June.
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