 | Debt in Equity Choice in Europe
Authors
Philippe
GAUD, HEC, University of Geneva
Martin HOESLI, HEC, University of Geneva, FAME and University
of Aberdeen
André BENDER, University of Geneva and FAME
Date
June
2005
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Abstract
Using
a sample of over 5,000 European firms, we document the driving factors of capital structure policies
in Europe. Controlling for dynamic patterns and national environments, we show how these policies cannot
be reduced to a simple trade-off or pecking order model. Both corporate governance and market timing
impact upon capital structure. European firms limit themselves to an upper barrier to leverage, but
not to a lower one. Debt constrains managers to payout cash, and equity may become cheap during windows
of opportunity. Internal financing, when available, is preferred over external financing, but companies
limit future excess of slack as it constitutes a potential source of conflict.
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