[...]... of the Firm: Managerial Behavior, Agency Costs and Capital Structure , Journal of Financial Economics, Vol 3, pp 305–60 Jordan, J., J Lowe and P Taylor (1998), ‘Strategy and Financial Policy in UK Small Firms’, Journal of Business Finance & Accounting , Vol 25, pp 1–27 Journal compilation C C 2007 The Authors Blackwell Publishing Ltd 2007 CAPITAL STRUCTURE AND FIRM EFFICIENCY 1469 Keasey, K and R Watson... Nos 9&10, pp 1402–34 Becchetti, L and J Sierra (2003), ‘Bankruptcy Risk and Productive Efficiency in Manufacturing Firms’, Journal of Banking and Finance, Vol 27, pp 2099–120 Berger, A N and E Bonaccorsi di Patti (2006), Capital Structure and Firm Performance: A New Approach to Testing Agency Theory and an Application to the Banking Industry’, Journal of Banking and Finance, Vol 30, pp 1065–102 C... interested in examining how capital structure choices affect firm value as well as the reverse relationship between efficiency and leverage More precisely, we want to examine if leverage has a positive effect on efficiency and whether the reverse effect of efficiency on leverage is similar across the spectrum of different capital structures We use a sample of 12,240 New Zealand firms from the 2004 Annual... Financial Ratios (Percentage of total assets) CAPITAL STRUCTURE AND FIRM EFFICIENCY 1459 1460 MARGARITIS AND PSILLAKI Table 2 2004 Descriptive Statistics Mean Long-term Debt∗ Short-term Debt∗ Tangibles∗ Other Assets∗ Profit (BTI)∗ Sales∗ Profit Margin∗ Hyperbolic Technical Efficiency Allocative Efficiency CRS Technical Efficiency VRS Technical Efficiency Scale Efficiency Median St Dev 0.229 0.261 0.482... the technical and scale efficiency of firms in our sample The DEA model is constructed using a single output (value-added) and two inputs (capital and labour) technology The labour input is measured by the total number of full-time equivalent employees and working proprietors whereas capital is measured by the firm s fixed tangible assets Firms that do not perform as well as the benchmark firms lie inside... 1468 MARGARITIS AND PSILLAKI Booth, L., V Aivazian, A Demirguc-Kunt and V Maksimovic (2001), Capital Structure in Developing Countries’, Journal of Finance, Vol 56, pp 87–130 Bradley, M., G Jarrell and E Kim (1984), ‘On the Existence of an Optimal Capital Structure: Theory and Evidence’, Journal of Finance, Vol 39, pp 857–78 Castanias, R (1983), ‘Bankruptcy Risk and Optimal Capital Structure , Journal... Pecking Order Theory of Capital Structure , Journal of Financial Economics, Vol 67, pp 217–48 Fried, H.O., C.A.K Lovell and S.S Schmidt (2007), Efficiency and Productivity’, in H O Fried, C.A.K Lovell and S.S Schmidt (eds.), The Measurement of Productive Efficiency and Productivity Growth (New York: Oxford University Press) Grossman, S J and O Hart (1982), ‘Corporate Financial Structure and Managerial Incentives’,... Information and Uncertainty (Chicago: University of Chicago Press) Hall, G.C., P.J Hutchinson and N Michaelas (2004), ‘Determinants of the Capital Structures of European SMEs’, Journal of Business Finance & Accounting , Vol 31, No 5, pp 711–28 Harris, M and A Raviv (1988), ‘Corporate Control Contests and Capital Structure , Journal of Financial Economics, Vol 20, pp 55–86 ——— ——— (1990), Capital Structure and. .. estimate efficiency under both CRS and VRS technologies Scale efficiency is measured by the ratio of (optimum scale) CRS over VRS technical efficiency We impose minimal requirements about firm behaviour and market structure Table 1 presents balance sheet information for the entire New Zealand market sector and for selected industries 11 The high leverage industries are trade and construction and the... and other assets; S = (log) size; D = efficiency; CI = concentration index; SV = risk REFERENCES Arnold, T., D Boles de Boer and L Evans (2003), ‘The Structure of New Zealand Industry: Its Implications for Competition Law’, in M Barry and L Evans (eds.), New Zealand Competition Law at the Year 2000 (Wellington: Victoria University of Wellington) Barclay, M.J and C.W Smith, Jr (2001), ‘The Capital Structure . 2007 CAPITAL STRUCTURE AND FIRM EFFICIENCY 1451 Myers, 1984) and taxation (DeAngelo and Masulis, 1980; and Bradley et al., 1984) are likely to affect the value of the firm. Although corporate capital. 10.1111/j.1468-5957.2007.02056.x Capital Structure and Firm Efficiency Dimitris Margaritis and Maria Psillaki ∗ Abstract: This paper investigates the relationship between firm efficiency and leverage. We consider. choice of capital structure (see Harris and Raviv, 1991; and Rajan and Zingales, 1995). Firm size (SIZE) is measured by the logarithm of the firm s sales (see Titman and Wessels, 1988; Rajan and Zingales,