Capital structure choice and financial market liberalization: evidence from New Zealand

Abstract

The extensive 1980's deregulation of New Zealand financial markets is exploited to provide a unique test of capital structure theory. Specifically, debt choices of New Zealand corporate firms during pre-reform (1982-1985) and post-reform (1986-1989) periods are analysed and compared. However, consistent with evidence from other countries, existing hypotheses are able to explain relatively little of the cross-sectional variation in either long- or short-term debt usage. More significantly, this lack of explanatory power is consistent across pre- and post-reform periods.

Firm heterogeneity, macroeconomic conditions and capital structure adjustment speeds: Evidence from the JSE

“…As a result, the misspecification of using book values is probably insignificant. Prasad, Green and Murinde (2001: 44) justify the use of book value measures because changes in the market value of equity " ... may not reflect any underlying alteration within the firm ... " Furthermore, Marsh (1982}, Boyle andEckhold (1997) and Hovakimian, Opler and Titman (2001) SIZE is measured as the logarithm of total assets. GROWTH captures the growth prospects of firm i, at time t, and is calculated as the ratio of the market value per share divided by the book value per share.…”

The relationship between capital structure and product markets: evidence from New Zealand

“…Titman and Wessels (1988) and Boyle and Eckhold (1997) note that firms may invest in unnecessarily risky projects in order to reduce the returns to the firm's creditors. This strategy may be particularly costly for firms in growth industries that have a wider range of future investments to choose from and therefore growth firms may use less long-term debt.…”

“…Consequently debt becomes more expensive and is less likely to be used. Following a similar measure in Boyle and Eckhold (1997), our proxy for risk is the standard deviation of the firm's EBIT divided by the absolute value of average EBIT, calculated over a 5-year period centred around the year when the risk is observed.…”

Financial globalization and debt maturity in emerging economies

“…All three liberalizations are statistically significant in explaining the increase in the proportion of 21 Several country cases already analyze firm-level data around the liberalization of the domestic financial sector. See Boyle and Eckhold (1997) for New Zealand, Gallego and Loayza (2000) for Chile, Gelos and Werner (2002) for Mexico, Harris et al (1994) for Indonesia, Jaramillo et al (1996) for Ecuador, and Koo and Shin (2004) for Korea. 22 Though these results are not reported here, they are available upon request.…”