High and Low Leverage Choices: Some Evidence from Private Firms

Abstract

This paper studies the determinants of low and high leveraged financial structures analyzing a sample of 831 medium-large private firms, in the first and last quartile of the leverage distribution, using panel data and simultaneous equations procedures in the period 2001-2010. The empirical findings show that group membership and management factors influence financing decisions, and that internal capital markets, net working capital choices and product market position influence private firms’ capital structure choices, consistently with a pecking order perspective. This study provides evidence on medium large private firms, which are quite unexplored compared to small businesses and to the public counterpart, relying on the theoretical framework of the Pecking Order Theory integrated by product market competition and internal capital market theories.