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An Explicit Test for Capital Structure ConvergenceAngelos A. AntzoulatosUniversity of Piraeus - Department of Banking and Financial Management Kostas KoufopoulosUniversity of Warwick - Finance Group Costas LambrinoudakisUniversity of Piraeus - Department of Banking and Financial Management Emmanuel D. TsiritakisUniversity of Piraeus September 3, 2012 Midwest Finance Association 2012 Annual Meetings Paper Abstract: We employ the panel convergence methodology developed by Phillips and Sul (2007) to test for leverage convergence across a set of US firms. There is no convergence detected when the whole sample is tested. However, we detect one big convergent club, i.e. a group of convergent firms, accounting for 70% of the whole sample and consisting of financially unconstrained firms. The convergence within the club happens in rates. This means that, in every period, the leverage of these firms changes by the same rate. The generating force that drives convergence and makes the leverage of these firms fluctuate in tandem is the level of development of the financial markets. By testing for leverage convergence and exploring the economic force that drives any potential convergence feature, we introduce a new way to disentangle and assess the impact of different systematic factors on leverage.
Number of Pages in PDF File: 52 Keywords: Capital structure, Convergence, Financial constraints, Financial development JEL Classification: G30, G32 working papers seriesDate posted: March 17, 2011 ; Last revised: September 5, 2012Suggested CitationContact Information
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