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Does Local Capital Supply Matter for Public Firms’ Capital Structures?

Published online by Cambridge University Press:  19 June 2020

Binay K. Adhikari ,
David C. Cicero Open the ORCID record for David C. Cicero [Opens in a new window]  and
Johan Sulaeman
Binay K. Adhikari*
Affiliation:
University of Texas at San Antonio Department of [email protected]
David C. Cicero
Affiliation:
Auburn University Harbert College of [email protected]
Johan Sulaeman
Affiliation:
National University of Singapore Business [email protected]
*
[email protected] (corresponding author)
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Abstract

Publicly listed firms respond to capital supply conditions shaped by local investing preferences. Public firms headquartered in areas with higher proportions of senior citizens and women use more debt financing. These demographics are associated with conservative investing, leading to a higher and more stable local supply of debt capital. The demographics–leverage relation is more pronounced for firms that cannot easily tap public bond markets, which is the majority of public firms. Changes in firms’ financing activities around exogenous shocks to credit supplies, including interstate banking deregulation and the 2008–2009 financial crisis, support the local capital supply hypothesis.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 5 , August 2021 , pp. 1809 - 1843
Copyright
© The Author(S), 2020. Published By Cambridge University Press On Behalf Of The Michael G. Foster School Of Business, University Of Washington

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Footnotes

An earlier version of this paper was circulated with the title “Local Investors’ Preferences and Capital Structure.” We thank Bo Becker (the referee), Jarrad Harford (the editor), Timothy J. Yeager, and participants in seminars at Lehigh University, Maastricht University, Macquarie University, Miami University, National University of Singapore, University of New South Wales, University of Zurich, and at the 2017 China International Conference in Finance, 2017 Paris Financial Management Association Conference, 2019 Financial Management Association Conference, and 2019 Southern Finance Association Conference. We are particularly grateful to our discussants, Vidhan Goyal, Abol Jalilvand, Sharif Mazumder, and Markus Schmid. Sulaeman acknowledges research support from National University of Singapore (NUS) Start-Up Research Grant WBS R-315-000-113-133. All errors are our own.

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