Further Evidence on Debt-Equity Choice

Philippe Gaud, Martin Hoesli and André Bender
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Philippe Gaud: HEC - University of Geneva
André Bender: HEC - University of Geneva & FAME

FAME Research Paper Series from International Center for Financial Asset Management and Engineering

Abstract: Using a large sample of 5,365 European firms,we document the driving factors of debt-equity choices. Adjustments to a target debt level play a modest role except when debt exceeds an upper barrier, a result that underlines the importance of debt capacity. Preference for internal financing, leverage deficit prior to equity issues, as well as a high level of slack of firms seeking to reduce equity constitute further evidence in favor of pecking order models. It is also found that managers try to time the market by issuing shares when returns are high, but that there is a link between financing and investment activities as predicted by agency models.

Keywords: Dynamic capital structure; Debt-equity choice; Tradeoff models; Pecking order models (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2004-05
New Economics Papers: this item is included in nep-cfn, nep-eec and nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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