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Does the external environment matter for the persistence of firms' debt policy?

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  • Huang, Zhen
  • Gao, Weiwei
  • Chen, Liying

Abstract

This paper investigates the existence of debt policy persistence and further explores the effects of external environment on the persistence of debt policy from the perspectives of micro-level and macro-level, respectively. We find that both capital structure policy and debt maturity policy are persistent, supporting the path dependence theory and imprinting theory. Another conclusion is that the macro-level financial crisis does significantly reduce the persistence of debt policy, while micro-level environmental uncertainty has no effect on the debt policy persistence. These results suggest that the firms’ debt policy persistence is more likely to be disrupted by a drastic increase in macro-level systemic risk compared with micro-level non-systemic risk.

Suggested Citation

  • Huang, Zhen & Gao, Weiwei & Chen, Liying, 2020. "Does the external environment matter for the persistence of firms' debt policy?," Finance Research Letters, Elsevier, vol. 32(C).
    • Handle: RePEc:eee:finlet:v:32:y:2020:i:c:s1544612318304975
    DOI: 10.1016/j.frl.2018.12.021
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    8. Melgarejo Duran, Mauricio & Stephen, Sheryl-Ann, 2020. "Internationalization and the capital structure of firms in emerging markets: Evidence from Latin America before and after the financial crisis," Research in International Business and Finance, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Initial debt policy; Persistence; Environmental uncertainty; Financial crisis;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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