Leverage and Financing Choices: Firm-Specific Longitudinal Evidence

48 Pages Posted: 7 Nov 2017

See all articles by Seth Armitage

Seth Armitage

University of Edinburgh - Accounting and Finance

Angelica Gonzalez

University of Edinburgh

Date Written: October 2017

Abstract

We follow the financing choices over time of established companies with initial high profitability and low leverage, company by company. The behaviour of most suggests preference for low leverage or indifference to leverage so long as it is not excessive (debt/assets above 50%). Companies lever up in order to fund a large expenditure, and de-lever subsequently if they have cash inflows. Sustained leverage is associated with recurrent large expenditures. Share issues are an important source of funds and most issuers have good profitability, showing that share issues are important for healthy companies.

Keywords: leverage; share issues; repurchases; special dividends; financial flexibility

JEL Classification: G32; G35

Suggested Citation

Armitage, Seth and Gonzalez, Angelica, Leverage and Financing Choices: Firm-Specific Longitudinal Evidence (October 2017). Available at SSRN: https://ssrn.com/abstract=3065945 or http://dx.doi.org/10.2139/ssrn.3065945

Seth Armitage (Contact Author)

University of Edinburgh - Accounting and Finance ( email )

29 Buccleuch Place
Edinburgh, EH8 9JS
United Kingdom
44 131 650 3794 (Phone)

Angelica Gonzalez

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

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