Incidence and Costs of Pinhole Leak Corrosion and Corporate Cost of Capital Borrowing
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The second part of this document deals with the debt financing issues. Debt financing decisions are made simultaneously by lenders and borrowers. Since lenders are unable to observe directly the firmsâ investment decisions, the banks offer contracts based up on firmsâ observable characteristics (i.e. wealth and size) and the prevailing market conditions. When deciding on the financing decisions, firms also take into account the changes in macroeconomic variables in order to lower the cost of borrowing. As a result, the goal for this article is to examine empirically the hypothesis of the effect of the debt determinant as well as the macroeconomic variables on the debt maturity structure. A reduced form of the simultaneous financing decisions model is estimated by employing several OLS estimation methods. The empirical findings offer strong support for firms with few growth options, large, and of low quality having more long-term debt in their capital structure. There was, however, no clear support for the impact of macroeconomic variables on debt maturity as some variables were not statistically significant.
- Doctoral Dissertations