Debt Equity Choice in Europe

Philippe Gaud (), Martin Hoesli and André Bender ()

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

Abstract: Using a sample of over 5,000 European firms, we document the driving factors of capital structure policies in Europe. Controlling for dynamic patterns and national environments, we show how these policies cannot be reduced to a simple trade-off or pecking order model. Both corporate governance and market timing impact upon capital structure. European firms limit themselves to an upper barrier to leverage, but not to a lower one. Debt constrains managers to payout cash, and equity may become cheap during windows of opportunity. Internal financing, when available, is preferred over external financing, but companies limit future excess of slack as it constitutes a potential source of conflict.

Keywords: dynamic capital structure; debt-equity choice; trade-off; agency; pecking order (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2005-06
New Economics Papers: this item is included in nep-cfn, nep-eec, nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Debt-equity choice in Europe (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:fam:rpseri:rp152

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