The determinants of capital structure choice: Evidence from Western Europe

This paper examines corporate leverage and its determinants on panel of 921 large Western European companies from 2003 to 2010. The results proved a substantial influence of estimated variables on changes in target debt or leverage ratio. Apart of the determinants from the «core” model, I test the influence of stock price variations on changes in capital structure to conclude if companies «time” the market. The estimation procedure of target debt ratio was performed using Fixed-Effect and FGLS methods. The results were compared to the results of often used methodology in previous research - OLS and Tobit regression. I found statistically significant and negative correlation between target leverage ratio and tangibility, market to book, profitability, product uniqueness and total return (average stock return) and statistically significant and positive correlation between target leverage ratio and size. The results suggest the mix of trade-off and pecking order theory predictions and are consistent with findings of previous studies. Future research should focus on impact of leverage deficit (deviations from target leverage ratio) on corporate decisions in Europe.


Issue Date:
2015
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/246151
Published in:
Business and Economic Horizons, Volume 11, Issue 2
Business and Economic Horizons
Page range:
76-95
Total Pages:
20
JEL Codes:
G15; G30; G32




 Record created 2017-04-01, last modified 2017-08-22

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)