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Corporate capital structure in the United Kingdom: determinants and adjustment

Author

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  • Philip Bunn
  • Garry Young

Abstract

In this paper three contributions are made. First, empirical support is provided for the 'trade-off' model of corporate capital structure where companies borrow to take advantage of the tax benefits of debt, which they set against possible costs of overindebtedness. Second, it is shown empirically how companies adjust their balance sheets when borrowing is out of equilibrium, through adjustments to dividend payments, new equity issues and to a lesser extent capital investment. Third, these factors are incorporated within an aggregate model that quantifies the process and speed of balance sheet adjustment in the economy as a whole.

Suggested Citation

  • Philip Bunn & Garry Young, 2004. "Corporate capital structure in the United Kingdom: determinants and adjustment," Bank of England working papers 226, Bank of England.
    • Handle: RePEc:boe:boeewp:226
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    File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2004/WP226.pdf
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    References listed on IDEAS

    as
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    2. Burgess, Stephen & Fernandez-Corugedo, Emilio & Groth, Charlotta & Harrison, Richard & Monti, Francesca & Theodoridis, Konstantinos & Waldron, Matt, 2013. "The Bank of England's forecasting platform: COMPASS, MAPS, EASE and the suite of models," Bank of England working papers 471, Bank of England.
    3. Jon Tucker & John Pointon & Moji Olugbode, 2010. "Target gearing in the UK: a triangulated approach," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 6(1), pages 58-80, February.
    4. Haldane, Andrew & Hall, Simon & Pezzini, Silvia, 2007. "Financial Stability Paper No 2: A New Approach to Assessing Risks to Financial Stability," Bank of England Financial Stability Papers 2, Bank of England.

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