Premium
Geography and capital structure
Author(s) -
Wang Xiaoqiao,
Wang Jin,
Johnson Lewis
Publication year - 2018
Publication title -
canadian journal of administrative sciences / revue canadienne des sciences de l'administration
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 48
eISSN - 1936-4490
pISSN - 0825-0383
DOI - 10.1002/cjas.1383
Subject(s) - leverage (statistics) , capital structure , capital (architecture) , information asymmetry , economic geography , constraint (computer aided design) , location , economics , business , microeconomics , geography , finance , computer science , engineering , mechanical engineering , debt , archaeology , geodesy , machine learning
We investigate the impact of geographic location on firms’ capital structure decisions. We find strong evidence that location of a firm influences its capital structure. In particular, we find that centrally located firms have lower leverage ratios than do remotely located ones. Moreover, consistent with the hypothesis that those remotely located firms face more severe adverse selection problems, the effect of geographic location on capital structure is more pronounced when information asymmetry is higher. We further examine alternative explanations of the negative relation between firm geographic proximity and capital structure and show that the financial constraint effect and industry clustering effect do not explain our results. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.