Economic and financial reports / European Investment Bank 2001/02
While it is commonly believed that companies issue non-current debt in order to finance capital expenditures, the relationship among these two variables is in practice much more complicated, and it depends on the overall real and financial flows related to companies' activity. Looking at such flows reveals that internal sources are higher than capital expenditures for listed companies in France, Germany and Italy. UK companies on the contrary run a financial deficit. Yet, French companies issue more debt than UK companies do. The anomaly is explained by our econometric model, revealing that lagged leverage is the main determinant of debt issues. As French companies display the highest leverage, they also issue the most debt. Collateral is found to positively influence debt issues in all countries except France. There is also evidence that debt issuance by UK companies is positively affected by size and liquidity, and negatively affected by profitability. Size, liquidity and profitability are not found to affect issuance for continental companies, perhaps because these companies run a financing surplus.