Published online by Cambridge University Press: 19 June 2020
Publicly listed firms respond to capital supply conditions shaped by local investing preferences. Public firms headquartered in areas with higher proportions of senior citizens and women use more debt financing. These demographics are associated with conservative investing, leading to a higher and more stable local supply of debt capital. The demographics–leverage relation is more pronounced for firms that cannot easily tap public bond markets, which is the majority of public firms. Changes in firms’ financing activities around exogenous shocks to credit supplies, including interstate banking deregulation and the 2008–2009 financial crisis, support the local capital supply hypothesis.
An earlier version of this paper was circulated with the title “Local Investors’ Preferences and Capital Structure.” We thank Bo Becker (the referee), Jarrad Harford (the editor), Timothy J. Yeager, and participants in seminars at Lehigh University, Maastricht University, Macquarie University, Miami University, National University of Singapore, University of New South Wales, University of Zurich, and at the 2017 China International Conference in Finance, 2017 Paris Financial Management Association Conference, 2019 Financial Management Association Conference, and 2019 Southern Finance Association Conference. We are particularly grateful to our discussants, Vidhan Goyal, Abol Jalilvand, Sharif Mazumder, and Markus Schmid. Sulaeman acknowledges research support from National University of Singapore (NUS) Start-Up Research Grant WBS R-315-000-113-133. All errors are our own.