eThesis - Kauppakorkeakoulun sähköiset gradut

PURPOSE OF THE STUDY The objective of this Thesis is to study the capital structures and financial choices of private and public companies. By studying private companies this study analyses how well the common theories of capital structure and financing choices, which have mainly been studied among public firms, apply to private companies. In addition, this study sheds light on the main factors that differentiate the financial choices of private companies from their public counterparts, as well as assesses how access to public capital markets affects the operational preconditions and other financial choices of companies.

In addition to comparing private and public companies, this paper also further investigates the relationship between ownership and corporate financing choices. By analyzing the ownership concentration of public companies this study sheds light on the fact whether corporate governance issues and value of control have an impact on corporate financing choices. Analysis of ownership concentration also allows for a relative comparison of the importance of the issues that differentiate private and public companies and their financial choices.

DATA The data in this study comprises of the financial information of 350 largest private and public companies in Finland from the time period of 1999 to 2008. In total the sample under study includes 2,788 firm-year observations. The study also uses detailed ownership information of the Finnish public companies and utilizes data of their capital issuances, initial public offerings, and going private transactions.

RESULTS The study shows that being public itself does not directly lead to lower leverage ratios as there seems to be no significant differences in the leverage ratios of private and public companies after controlling for commonly found determinants of leverage. Public firms, however, seem to have more active financial policies, and better ability to respond to changes in their operating environment.

This study also shows that ownership structure can matter in the context of corporate financing choices, which is an issue that has received relatively little attention in earlier academic literature. When ownership concentration of companies is taken into account the results show that closely firms are likely to be more leveraged than their widely held counterparts, and this differences seems to be mainly caused by the closely held firms’ reluctance to issue equity and owners’ unwillingness to give away control.

KEYWORDS Capital structure, financial policies, leverage, private companies, ownership structure