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Capital structure and assets risk

Some evidence from the Euro Area

Doctoral Thesis / Dissertation 2007 163 Pages

Economics - Finance

Summary

Using a sample of non-financial listed firms located in the Euro area, I investigate the determinants of capital structure choices. In line with the traditional theoretical approach, I use a market-value measure of leverage, estimated with the Black-Scholes-Merton model. In the cross-section regressions for firm leverage I find that some variables have similar effects across countries, while others may play a different role; risk, measured as the volatility of the market enterprise value, is the best predictor of observed leverage ratios. Risk, and asymmetric information about risk, make debt less attractive, because of higher expected bankruptcy costs, lower expected debt tax shield and higher agency costs. National environments are an important determinant of observed ratios; sector of activity is a relevant factor as well. The integration of Euro-area financial markets varies significantly depending on the market segment considered: money and inter-bank markets are highly integrated, corporate bond and equity markets show a clear path of increasing integration, retail banking markets are much less integrated. Fiscal and bankruptcy rules differ across the twelve countries; the economic background varies as well.

Details

Pages
163
Year
2007
ISBN (eBook)
9783656657583
ISBN (Book)
9783656657576
File size
6.6 MB
Language
English
Catalog Number
v273880
Institution / College
Catholic University of Sacred Heart
Grade
NA
Tags
capital some euro area

Author

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Title: Capital structure and assets risk