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International capital structure differences among the G7 nations: a current empirical view

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  • Kenneth Mcclure
  • Ronnie Clayton
  • Richard Hofler
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    Abstract

    Historical research domestically and internationally suggests that differences in capital structures exist for industry classification, firm size and nationality. However, the data for most of these previous studies are based on book values, include a limited number of countries, are not up-to-date, and specifically do not cover the period of the late 1980s when there were important developments in the globalization of financial markets. In addition, no single study specifically compares all seven of the world's major industrial nations (G7 Nations). Financial theory would suggest that in an efficient global market the capital structure of identical firms in different nations would be the same. If international market imperfections still exist through the 1980s, current capital structures and costs may be different among similar firms in different nations; and business advantages (or disadvantages) may provide profits (or costs) to firms incorporated in different countries. The intent of this research is empirically to update the literature with recent international data on both a book value and market value basis and to include for the first time in a single study all the G7 Nations. The results suggest significant financial structure differences still exist among the G7 countries. Specifically, on a market value basis France, Italy and Germany tend to use a higher proportion of total debt, US, UK, Canada and Japan tend to use less debt, and France, Italy and Canada tend to use a higher proportion of institutional debt (non-spontaneous funds) than the US, UK, Japan and Germany.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/135184799337145
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

    Volume (Year): 5 (1999)
    Issue (Month): 2 ()
    Pages: 141-164

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    Handle: RePEc:taf:eurjfi:v:5:y:1999:i:2:p:141-164

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    Web page: http://www.tandfonline.com/REJF20

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    Related research

    Keywords: International Finance; Capital Structure; Corporate Finance;

    References

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    1. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
    2. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
    3. Hodder, James E & Senbet, Lemma W, 1990. " International Capital Structure Equilibrium," Journal of Finance, American Finance Association, vol. 45(5), pages 1495-1516, December.
    4. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    5. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    6. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
    7. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    8. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    9. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    10. Solnik, B H, 1974. "The International Pricing of Risk: An Empirical Investigation of the World Capital Market Structure," Journal of Finance, American Finance Association, vol. 29(2), pages 365-78, May.
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