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Dynamic Optimal Capital Structure and Technical Change

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  • Lööf, Hans

    (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

Abstract

The importance of capital structure is explored by comparing existing archetypes of financial systems through a new methodological application. Differences in firms’ cost of capital show that capital structure is relevant in R&D and other investment decisions. The conclusions are that 1) there are large and also unexpected cross-country differences in determinants to optimal capital structure; 2) observed leverage is often different from target in both equity (or stock market based) and debt (or bank based) dominated systems; 3) faster speed towards the target is observed in the equity based system indicating a higher flexibility.

Suggested Citation

  • Lööf, Hans, 2004. "Dynamic Optimal Capital Structure and Technical Change," Working Paper Series in Economics and Institutions of Innovation 23, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    • Handle: RePEc:hhs:cesisp:0023
    Note: The paper is published in Structural Change and Economic Dynamics, Vol 15 Issue 14, pages 449-468 (December 2004)
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    More about this item

    Keywords

    Capital structure; dynamic adjustment; panel data; optimal leverage; financial markets; cross-country comparison; technological change; creative destruction.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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