نوسانات ساختاری سرمایه در اروپا Capital structure volatility in Europe

I. Introduction According to the static trade-off theory, companies should have a target leverage ratio which balances the benefits and costs of debt. This would imply that firms should try to maintain a particular capital structure, and not deviate much from that level. However, recent research has found that many companies do not seem to pursue this approach. DeAngelo and Roll (2015) have opened a new direction in capital structure research, with their focus on the volatility of debt ratios over time, rather than on their levels. They have found that, in the United States, capital structure stability is the exception, not the rule. We begin by extending their analysis to Europe, focusing on the period from 2006 to 2016. We examine companies based in the major markets of UK, Germany and France, and also include companies from the PIIGS (Portugal, Italy, Ireland, Greece and Spain) whose capital structures could potentially have been heavily affected by the Credit Crunch and Eurozone Crisis. We show that, although average debt ratios within countries generally did not change much, there were many companies which experienced substantial changes in their capital structure. We analyse what types of companies experienced the largest changes in debt levels, and which had the highest volatility. We find that small firms, and those with lower returns on assets, experienced the most volatility. The focus of DeAngelo and Roll (2015) is to demonstrate the surprising amount of debt instability, so they do not extensively examine the causes of this volatility. However, they do speculate that it might be related to the budget constraint. The concept of the budget constraint, whereby a firm’s uses of funds must equal its sources of funds, has been discussed at least as far back as Miller and Modigliani (1961), and has also been used more recently by Fama and French (2012), and Gatchev, Pulvino, and Tarhan (2010) in their explanations of why different corporate finance policies may interact. Lambrecht and Myers (2012) also use it to suggest that if firms want to choose their level of capital expenditure and dividends, then they must allow debt to fluctuate as a residual.