Capital Structure Decisions: Evidence from Deregulated Industries
Alexei V. Ovtchinnikov
HEC Paris - Finance Department
February 25, 2009
Deregulation significantly affects the firms' operating environment and leverage decisions. Firms experience a significant decline in profitability, asset tangibility and a significant increase in growth opportunities following deregulation. Firms respond by reducing leverage. Deregulation also significantly affects the cross-sectional relation between leverage and its determinants. Leverage is much less negatively correlated with profitability and market-to-book and much more positively (negatively) correlated with firm size (earnings volatility) following deregulation. These results are consistent with the dynamic tradeoff theory of capital structure. Also consistent with the dynamic tradeoff theory, those firms that are more likely to be above their target capital structure issue significantly more equity in the first few years following deregulation.
Number of Pages in PDF File: 53
Keywords: Capital structure, financing policy, deregulation
JEL Classification: G32, G38
Date posted: March 17, 2009
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