Capital structure choice and financial market liberalization: evidence from New Zealand

The extensive 1980's deregulation of New Zealand financial markets is exploited to provide a unique test of capital structure theory. Specifically, debt choices of New Zealand corporate firms during pre-reform (1982-1985) and post-reform (1986-1989) periods are analysed and compared. However, consistent with evidence from other countries, existing hypotheses are able to explain relatively little of the cross-sectional variation in either long- or short-term debt usage. More significantly, this lack of explanatory power is consistent across pre- and post-reform periods.