The Response of Firms' Leverage to Risk: Evidence from UK Public Versus Nonpublic Manufacturing Firms

23 Pages Posted: 20 Nov 2013

See all articles by Mustafa Caglayan

Mustafa Caglayan

Heriot-Watt University - School of Management and Languages

Dr. Abdul Rashid

International Institute of Islamic Economics (IIIE), International Islamic University

Date Written: January 2014

Abstract

This article empirically investigates the effects of macroeconomic and firm‐specific risk on firms' leverage. The analysis is carried out for a large panel of public and nonpublic UK manufacturing firms over the period 1999–2008. Our investigation provides evidence that UK manufacturing firms use less short‐term debt during periods of high risk. However, the leverage of nonpublic manufacturing firms is more sensitive to firm‐specific risk in comparison to their public counterparts while macroeconomic risk affects both types of firms similarly. Our investigation also shows that firms with high liquid assets reduce their leverage more (less) during periods of heightened firm‐specific (macroeconomic) risk.

JEL Classification: C23, G32

Suggested Citation

Caglayan, Mustafa and Rashid, Abdul, The Response of Firms' Leverage to Risk: Evidence from UK Public Versus Nonpublic Manufacturing Firms (January 2014). Economic Inquiry, Vol. 52, Issue 1, pp. 341-363, 2014, Available at SSRN: https://ssrn.com/abstract=2357242 or http://dx.doi.org/10.1111/ecin.12042

Mustafa Caglayan (Contact Author)

Heriot-Watt University - School of Management and Languages ( email )

Edinburgh EH14 4AS, Scotland
United Kingdom

Abdul Rashid

International Institute of Islamic Economics (IIIE), International Islamic University ( email )

New Campus, Faculty Block 2
Sector H-10
Islamabad, PA Federal 44000
Pakistan
03332277507 (Phone)

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