Capital Market Access and Cash Flow Allocation During the Financial Crisis

David Florysiak, Vidhan K. Goyal

Publikation: Working paperForskning


To understand how a stock market listing influences corporate policies if external financing is restricted, we examine how European public and counterfactual private firms jointly adjust their investment, financing, payout policies during the global financial crisis - when bank lending tightened. Our findings suggest that a stock market listing provides better access to external debt financing during the crisis as public firms, on average, net issue more long-term debt. Excess debt financing is, however, not allocated to investments but mostly to payouts to shareholders. Thus, a stock market listing relaxes financial constraints but induces managers to cater to shareholders during the crisis. Independent of a country's financial market structure (bank-based vs. market based) in our European firm sample, a stock market listing always provides a firm with more long-term debt during the crisis. In bank-based economies, this excess debt is mostly allocated to maintain investments while in market-based economies, inducing higher short-termist pressures, a stock-listing leads to lower investments and excess debt is used to maintain payouts.
StatusUdgivet - 1. feb. 2017

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