Abstract
This article presents an analysis of how Norwegian nonlisted firms are financed. Using a unique database covering all limited liability firms in Norway, both the size (leverage) and composition (maturity structure) of debt are investigated. The empirical evidence provides support for the effects of taxes, asymmetric information and size suggested in the theoretical literature and rejects the effects of agency costs and the pecking order theory. It also shows that the capital structure choice in these firms is not made in a fundamentally different way than in large firms.
Notes
1Carlsen and Nilsen (Citation1993) is the only study we found; it contains an analysis of the capital structure of 64 listed firms in the period 1984 to 1986.
2This assumes that issuing costs are not too high and that the liquidity risk and the interest rate uncertainty are taken into account.
3The test used by Shyam-Sunder and Myers is based on the pecking order's prediction that a large variation in debt is explained by deficits. The test will reject the pecking order hypothesis incorrectly when a firm has a financial structure consistent with the pecking order theory, but mostly uses equity in external financing (Chirinko and Singha, Citation2000).
4A second way of eliminating serial correlation is by calculating the average of an observation over all 5 years and estimating a cross-sectional ordinary least square regression. The resulting estimates from this second case will be given in the next section. The data set is then condensed to 2875 observations.
5For both samples 1 year of observations is used to compute the growth of sales or the change in earnings. In the unlisted firms samples some extreme outliers (0.1% extremes of the observations) are deleted from the data set prior to estimation. This results in 14 357 firm-year observations for the first random sample and 13 910 for the second sample.