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Shocks to the cost of borrowing and capital structure

Cuñat, Vicente and Gonzalez-Iturriaga, Claudio (2005) Shocks to the cost of borrowing and capital structure. Department of Finance, London School of Economics and Political Science, London, UK. (Unpublished)

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Abstract

We use the imposition of a non remunerated reserve on short term borrowing in Chile in 1991 as a cuasi natural experiment to test the effects of an increase in the cost of short term borrowing on capital structure and investment. The differential impact of this regulatory measure across firms allows us to perform a difference in differences analysis. We find a drastic drop in short term borrowing of regulated firms that was almost completely offset by additional long term borrowing. The nature of the experiment allows us to isolate a clear causality from changes in the cost of funds to capital structure, solving some of the endogeneity problems present in preexisting literature.

Item Type: Monograph (Working Paper)
Official URL: http://www.vicentecunat.com/encaje140705.pdf
Additional Information: © 2005 The Authors
Library of Congress subject classification: H Social Sciences > HG Finance
Sets: Research centres and groups > Managerial Economics and Strategy Group
Departments > Finance
Departments > Management
Research centres and groups > Financial Markets Group (FMG)
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 17 Apr 2012 14:18
URL: http://eprints.lse.ac.uk/43165/

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