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Access to Capital, Capital Structure, and the Funding of the Firm
Author(s) -
BRAV OMER
Publication year - 2009
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2008.01434.x
Subject(s) - private investment in public equity , private equity , capital structure , private equity firm , information asymmetry , equity capital markets , leverage (statistics) , private equity secondary market , debt , business , cost of capital , finance , monetary economics , club deal , public capital , equity capital , equity (law) , economics , capital market , microeconomics , incentive , machine learning , public investment , computer science , law , political science , fiscal policy
Based upon a large data set of public and private firms in the United Kingdom, I find that compared to their public counterparts, private firms rely almost exclusively on debt financing, have higher leverage ratios, and tend to avoid external capital markets, leading to a greater sensitivity of their capital structures to fluctuations in performance. I argue that these differences are due to private equity being more costly than public equity. I further examine the private firms subsample to show that private equity is more costly than its public counterpart due to information asymmetry and the desire to maintain control.