Does the Introduction of the Euro Affect the Debt-Equity Choice?
Keele Economics Research Papers, 2006/22
17 Pages Posted: 7 Mar 2007
We study firms from 14 Western European countries to detect the influence of a vanishing risk premium due to exchange rate risk on equity and debt issues. According to our hypothesis, Eurozone firms in industries with relatively higher external finance dependence (EFD) issue more equity and debt after 1999 than those outside the Euro area. We find that Eurozone firms in high EFD industries are more likely to issue equity, and are more likely to be equity issuers than debt issuers after 1999. Further, there is evidence that firms in our sample follow a dynamic leverage target.
Keywords: Euro introduction, external finance dependence, firm performance.
JEL Classification: G3
Suggested Citation: Suggested Citation