The Response of Firms' Leverage to Uncertainty: Evidence from UK Public versus Non-Public Firms

Abstract

This paper empirically investigates the effects of uncertainty on firms' leverage. The analysis is carried out for a large panel of public and non-public UK manufacturing firms over 1999-2008. The empirical results provide evidence that firms use less short-term debt as they go through periods of high uncertainty. The leverage of non-public firms is more sensitive to idiosyncratic uncertainty in comparison to their public counterparts, yet macroeconomic uncertainty affects both types of frms similarly. We fnally end our investigation showing that the total impact of either type of uncertainty on firms' leverage is related to the amount of the cash bu er each firm carries.

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