EconPapers    
Economics at your fingertips  
 

Capital structure adjustments in private business group companies

Nico Dewaelheyns and Cynthia Van Hulle

Applied Financial Economics, 2012, vol. 22, issue 15, 1275-1288

Abstract: The literature on capital structure dynamics assumes that companies trade-off the advantages of a leverage adjustment and its costs. In general, private companies are assumed to face relatively large adjustment costs, and should have lower financing flexibility. However, we argue that an important class of private companies -- business group affiliates -- may face relatively low adjustment costs because of their access to both internal and external capital markets and the beneficial reputation effects of belonging to a group. Our empirical results show significant differences in the composition of the capital structure and the leverage adjustment process between affiliates of private Belgian business groups and comparable stand‐alone companies. Group affiliates have higher levels of leverage, and adjust their capital structure more frequently than stand‐alones. Our evidence suggests that the flexibility in group companies’ capital structure is not solely driven by the use of internal leverage: group affiliates more frequently adjust their external leverage as well, unless the group is in poor financial health, in which case the affiliates’ probability of attracting external leverage is severely reduced.

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1080/09603107.2012.654912 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:22:y:2012:i:15:p:1275-1288

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603107.2012.654912

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2022-12-27
Handle: RePEc:taf:apfiec:v:22:y:2012:i:15:p:1275-1288