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Dynamic Optimal Capital Structure and Technological Change

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  • Lööf, Hans

Abstract

This paper incorporates the cost of adjustment between observed and optimal leverage in explaining the variation in firm?s equity or bank-debt financing investments. Using a dynamic adjustment approach identifies the determinants to capital structure between different financial systems. In relation to firm sales U.K and U.S firms have 50-100 percent more equity financing than Swedish firms depending on which measure used, while the ratio of debt to sales is highest in Sweden. The major findings are that observed leverage often deviates from the target leverage in both equity and debt dominated systems. There are large and also unexpected crosscountry differences in determinants to optimal capital structure. Swedish and U.K. firms deviate more from the optimal level than U.S firms. A faster speed towards the target is observed in the equity based systems.

Suggested Citation

  • Lööf, Hans, 2003. "Dynamic Optimal Capital Structure and Technological Change," ZEW Discussion Papers 03-06, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:904
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    File URL: https://www.econstor.eu/bitstream/10419/24809/1/dp0306.pdf
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    References listed on IDEAS

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    1. Jith Jayaratne & Philip E. Strahan, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 639-670.
    2. Bronwyn Hall, 2004. "The financing of research and development," Chapters,in: Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2 Edward Elgar Publishing.
    3. Subal Kumbhakar & Almas Heshmati & Lennart Hjalmarsson, 2002. "How Fast Do Banks Adjust? A Dynamic Model of Labor-Use with an Application to Swedish Banks," Journal of Productivity Analysis, Springer, vol. 18(1), pages 79-102, July.
    4. Assaf Razin & Efraim Sadka & Chi-Wa Yuen, 2001. "Why International Equity Inflows to Emerging Markets are Inefficient and Small Relative to International Debt Flows," NBER Working Papers 8659, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Drobetz, Wolfgang & Pensa, Pascal & Wöhle, Claudia B., 2004. "Kapitalstrukturtheorie in Theorie und Praxis: Ergebnisse einer Fragebogenuntersuchung," Working papers 2004/09, Faculty of Business and Economics - University of Basel.
    2. R.T.A. de Haas & H.M.M. Peeters, 2004. "Firms' dynamic adjustment to target capital structures in transition economies," WO Research Memoranda (discontinued) 761, Netherlands Central Bank, Research Department.
    3. Ralph de Haas & Marga Peeters, 2004. "The Dynamic Adjustment towards Target capital Structures of Firms in," DNB Staff Reports (discontinued) 123, Netherlands Central Bank.
    4. Zheka Vitaliy, 2010. "The impact of corporate governance practices on dynamic adjustment of capital structure of companies in Ukraine," EERC Working Paper Series 10/07e, EERC Research Network, Russia and CIS.

    More about this item

    Keywords

    Capital structure; dynamic adjustment; panel data; optimal leverage; financial markets; cross-country comparison; technological change;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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