Leverage Dynamics and Determinants of Private Limited Companies in Sweden and Germany

Abstract: This thesis paper analyzes the determinants and dynamics of leverage of private limited firms in Sweden and Germany during the period from 2004 until 2012. Our results show that leverage ratios of private limited firms are mean-reverting and persistent over longer time periods. When comparing public firms to their private peers, we find that the latter are more prone to suffer from problems of asymmetric information, which makes access to capital markets harder for them. Further, we find similar significance for leverage determinants of public and private limited firms. We also find that profitability, tangibility, firm size and industry characteristics count for a large amount of the variance of leverage of private limited firms. Further, our results indicate that on average more than 50% of the Swedish and more than 20% of German private limited companies are not levered.