This paper is a theoretical and empirical analysis on the effect of the financial crisis on debt financing in industrial firms. According to Pecking Order Theory, if costs of financial distress are serious, the firm will consider issuing equity to finance real investment or pay down debt. This paper hypothesizes that the financial crisis will have a negative effect on debt financing for firms capital structure. This study tests using a Tobit regression model because of the lower limit of our dependent variable. This study uses a comprehensive dataset of 95 industrial firms to empirically test the hypothesis. The results suggest that leverage, when operationalized as long-term debt over total assets, is negatively affected by the financial crisis at the 10% significance level. However, the econometrics section considers the results could be influenced by inefficiencies in the model, requiring future research for more conclusive findings.
Parmelee, Matthew, "An Investigation of Debt Financing in Industrial Firms Pre-Post the Financial Crisis: A Theoretical and Empirical Study" (2017). Senior Independent Study Theses. Paper 7596.
Bachelor of Arts
Senior Independent Study Thesis
© Copyright 2017 Matthew Parmelee