Brown Bag Seminar with Anastasiya Shamshur, Norwich Business School

The Department of Finance is happy to announce the upcoming Brown Bag Seminar with Anastasiya Shamshur, Norwich Business School

Anastasiya Shamshur will present

The Market vs Book Leverage Ratio Dilemma: Leverage Smoothing and Business Cycles

Abstract:
In this study we explore the relationship between book and market leverage. The obtained results suggest that book- and market-based values of leverage are closely related. The average difference in market and book values of leverage fluctuates around zero with recession sensitive firms being largely responsible for the observed volatility. The close relationship between book and market leverage supports the idea of the book leverage being managed to meet the market expectations. We find that managers adjust book leverage only when the book leverage exceeds the market leverage. This behavior is consistent with a conservative view on managing leverage ratios as managers deleverage firms when a one-sided discrepancy exists. The estimated adjustment speed is significantly higher for the business cycle sensitive firms which are more sensitive to negative macro shocks.