Capital Market Access and Financing of Private Firms

25 Pages Posted: 12 Jun 2011

See all articles by Vidhan K. Goyal

Vidhan K. Goyal

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Alessandro Nova

affiliation not provided to SSRN

Laura Zanetti

Bocconi University - Department of Finance

Date Written: June 2011

Abstract

How does capital market access affect the capital structure decisions of firms? To examine this question, we compare the financing decisions of a large sample of private and public companies from 18 different European countries. We find significant differences in the leverage policies of private and public firms. Private firms have much higher leverage ratios than public firms. In particular, the leverage of private firms is more negatively related to past profitability, consistent with their less active adjustment. Other evidence corroborates sluggish adjustment and suggests that private firms face significantly higher cost of accessing external capital markets. When we compare private and public firms in countries that differ on creditor rights and contract enforceability, we find more pronounced differences in the leverage policies of private and public firms in countries that are strong on legal rights and their enforcement. In countries with weak rights and poor enforcement, the financing policies of public firms begin to resemble those of private firms.

Suggested Citation

Goyal, Vidhan K. and Nova, Alessandro and Zanetti, Laura, Capital Market Access and Financing of Private Firms (June 2011). International Review of Finance, Vol. 11, Issue 2, pp. 155-179, 2011. Available at SSRN: https://ssrn.com/abstract=1861767 or http://dx.doi.org/10.1111/j.1468-2443.2011.01131.x

Vidhan K. Goyal (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong
852-2358-7678 (Phone)
852-2358-1749 (Fax)

HOME PAGE: http://www.vidhangoyal.com

Alessandro Nova

affiliation not provided to SSRN

No Address Available

Laura Zanetti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

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