Debt Equity Choice in Europe

Is Debt a Governance Device Against the Control Leverage? The Case of European Firms

“…Debt levels are closed to those reported by Rajan and Zingales (1995) in their sample of G-7 firms. The mean debt level of 0.318 is also in line with the 0.340 documented by Gaud, Hoesli and Bender (2005) on a larger sample of European firms.…”

“…Financing policy of European firms is complex and dynamic. Gaud et al (2005) find that firms constraint themselves to an upper debt level, but they take large downward deviations suggesting they do not have a lower debt leverage boundary. The reported negative sign should reflects these large downward deviations and, therefore, should be an artefact arising because the dynamic financing policy is not well described using cross sectional debt levels.…”

“…Instead, our result implies it is cheaper to adjust through capital rather than through ownership structure. Gaud et al (2005) document only one significant equity transaction -issue or share repurchase-for seven significant debt transactions, suggesting it is harder to change ownership structure than debt. Even if the debt discipline is cheaper, it can be argued that the ultimate owner does not need discipline at all.…”

“…Differences in equilibrium conditions may still generate correlations among variables, though the level of homogeneity in our -West-European sample of non-financial listed firms should be higher than in more internationally diversified samples. Concerning debt-equity choice of European firms, Gaud et al (2005) argue that a dummy control procedure is adequate in Europe except for share repurchases. Results should therefore be interpreted cautiously.…”

Dynamic Corporate Capital Structure Behavior: Empirical Assessment in the Light of Heterogeneity and Non Stationarity

“…Besides stationarity, these methods require pooling individual group slopes (i.e. only Bontempi (1999) for Italy, de Miguel and Pindado (2001) for Spain, Ozkan (2001) and Bevan and Danbolt (2002) for the UK, Gaud et al (2007) for Europe, Nunkoo and Boateng (2010) for Canada, Guney et al (2011) for China, and Noulas and Genimakis (2011) for Greece. Antoniou et al (2008) compare the results between bank-oriented (France, Germany, Japan) and market-oriented (US, and UK) countries.…”