We thank Nick Bloom and Steve Bond for providing the data used in the paper. We also thank two anonymous referees and seminar participants at the Bank of England, Bank of Spain, the Bundesbank and Royal Economic Society Annual Conference for useful comments. The views expressed are those of the authors and should not be thought to represent those of the Bank of England.
Financial Pressure and Balance Sheet Adjustment by Firms*
Article first published online: 4 JUL 2007
Oxford Bulletin of Economics and Statistics
Volume 69, Issue 5, pages 581–602, October 2007
How to Cite
Benito, A. and Young, G. (2007), Financial Pressure and Balance Sheet Adjustment by Firms. Oxford Bulletin of Economics and Statistics, 69: 581–602. doi: 10.1111/j.1468-0084.2007.00469.x
- Issue published online: 4 JUL 2007
- Article first published online: 4 JUL 2007
- Final Manuscript: September 2006
This paper examines the financial policies and balance sheet adjustment of companies. Using a large panel of UK-listed firms we consider how companies resolve pressures on their balance sheet, estimating models for dividends, new equity issuance and investment. The results indicate that companies resolve balance sheet pressures by each of these means. Financial policies, through dividends and new equity issuance, and real investment decisions, respond to the underlying level of debt and the borrowing cost of servicing that debt. Dividends are estimated to be slow to adjust in the short run.