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CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology KTH/CESIS Working Paper Series in Economics and Institutions of Innovation

No 23:
Dynamic Optimal Capital Structure and Technical Change

Hans Lööf ()

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.

Keywords: Capital structure; dynamic adjustment; panel data; optimal leverage; financial markets; cross-country comparison; technological change; creative destruction.; (follow links to similar papers)

JEL-Codes: C23; C51; G32; O16; O31; (follow links to similar papers)

28 pages, December 9, 2004

The paper is published in Structural Change and Economic Dynamics, Vol 15 Issue 14, pages 449-468 (December 2004)

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This paper is published as:
Lööf, Hans, (2004), 'Dynamic Optimal Capital Structure and Technical Change', Structural Change and Economic Dynamics, Vol. 15, December, No. 4, pages 449-468



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