Access to Capital and its Effect on Capital Structures, Leverage Deficits, and Acquisition Probabilities

Abstract

By using a large sample of Norwegian public and private firms, we study the effect of access to public equity markets on the firm’s capital structure, leverage deficit, and acquisition probability. We find that publicly listed firms use less debt financing compared to private firms and conclude that this is driven by the higher costs of asymmetric information facing unlisted firms. Next, we provide evidence that both types of firms have target capital structures and show that access to capital enables listed firms to rebalance their leverage ratio quicker towards this target compared to unlisted ones. Finally, we present evidence against the free cash flow theory as we find that underleveraging significantly reduces the likelihood of undertaking acquisitions. We show that access to capital has no significant effect on this relationship between the leverage deficit and the acquisition probability.