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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

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Date posted: March 17, 2009  

Suggested Citation

Ovtchinnikov, Alexei V., Capital Structure Decisions: Evidence from Deregulated Industries (February 25, 2009). Available at SSRN: http://ssrn.com/abstract=1360767 or http://dx.doi.org/10.2139/ssrn.1360767

Contact Information

Alexei V. Ovtchinnikov (Contact Author)
HEC Paris - Finance Department ( email )
1 rue de la Liberation
Jouy-en-Josas Cedex, 78351

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