THE RESPONSE OF FIRMS' LEVERAGE TO RISK: EVIDENCE FROM UK PUBLIC VERSUS NONPUBLIC MANUFACTURING FIRMS.

This article empirically investigates the effects of macroeconomic and firm-specific risk on firms' leverage. The analysis is carried out for a large panel of public and nonpublic UK manufacturing firms over the period 1999-2008. Our investigation provides evidence that UK manufacturing firms use less short-term debt during periods of high risk. However, the leverage of nonpublic manufacturing firms is more sensitive to firm-specific risk in comparison to their public counterparts while macroeconomic risk affects both types of firms similarly. Our investigation also shows that firms with high liquid assets reduce their leverage more (less) during periods of heightened firm-specific (macroeconomic) risk. (JEL C23, G32 ) [ABSTRACT FROM AUTHOR]