Leverage and Financing Choices: Firm-Specific Longitudinal Evidence
48 Pages Posted: 7 Nov 2017
Date Written: October 2017
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: Suggested Citation