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Do European Firms Behave as if they Converge toward a Target Capital Structure?
Author(s) -
Marinšek Denis,
Pahor Marko,
Mramor Dušan,
Luštrik Roman
Publication year - 2016
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/jifm.12046
Subject(s) - convergence (economics) , rest (music) , sample (material) , capital structure , process (computing) , industrial organization , capital (architecture) , business , economic geography , economics , economic system , monetary economics , microeconomics , macroeconomics , finance , geography , computer science , medicine , debt , chemistry , archaeology , chromatography , cardiology , operating system
Utilizing a large sample of European firms, we demonstrate that firms behave as if they converge toward a target capital structure (“leveraging process”), defined by traditional trade‐off variables. Moreover, we find that such behavior is evident regardless of firm size and ownership structure. We compare the degree of convergence among different groups of firms and find that medium‐sized firms, firms from the new EU member states, and firms from Southern Europe exhibit a stronger “leveraging process” than the rest of the sampled firms. Our results also highlight that the economic crisis, which began in the late 2008, impacted the leveraging dynamics; however, the general pattern of convergence remained unchanged.