Access to Capital, Capital Structure, and the Funding of the Firm

  • Author(s): OMER BRAV
  • Published: Jan 23, 2009
  • Pages: 263-308
  • DOI: 10.1111/j.1540-6261.2008.01434.x

ABSTRACT

Based upon a large data set of public and private firms in the United Kingdom, I find that compared to their public counterparts, private firms rely almost exclusively on debt financing, have higher leverage ratios, and tend to avoid external capital markets, leading to a greater sensitivity of their capital structures to fluctuations in performance. I argue that these differences are due to private equity being more costly than public equity. I further examine the private firms subsample to show that private equity is more costly than its public counterpart due to information asymmetry and the desire to maintain control.

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