9423645 Rajan There is very little scientific evidence on how the different financial systems of foreign countries affect the financing choices of firms, and even less evidence on how these choices affect industrial competitiveness. This project attempts to shed some light on how firms obtain financing in other systems in order to improve our understanding of the effects of financial choices on industrial competitiveness. The first part of the project establishes the broad stylized facts on financing and dividend decisions in a sample of large industrialized countries characterized by different institutional environments. More specifically, the project explores the level and the determinants of corporate leverage across countries, both at the aggregate and firm specific level; analyzes the determinants of the maturity structure of debt across countries; analyzes the dividend policy in different countries; and studies the determinants of inter-firm trade credit and how it varies across the business cycle. The second part of the project tests different theories of corporate financing decision. Myers' Pecking Order Theory and Jensen's Free Cash Flow Theory are tested using the dynamic aspects of financing choices. A theoretical framework is developed to identify demand and supply of debt versus equity and used to analyze separately the effects of different financial institutions and regulation on the supply of, and the demand for, different financing instruments. Finally, this project analyzes the social costs and benefits under different bankruptcy codes and institutional settings by studying the response of firms to financial distress in different countries.
