Financial pressure and balance sheet adjustment by UK firms

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 18 October 2002

Working Paper no. 168
By Andrew Benito and Garry Young

This paper examines the financial policies and balance sheet adjustment of companies. Using a large panel of quoted UK firms, we estimate models for dividends, new equity issuance and investment, relating them to debt adjustment. The results suggest that while dividends are sticky in the short run, they are an important means of balance sheet adjustment in the long run. Other evidence supports the idea that companies actively target their balance sheet by variation in dividends, new equity issues and investment.

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