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How do Firm Characteristics Affect Capital Structure? Some UK Evidence.

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  • Akdal, Sinan

Abstract

This study aims to determine the influence of various firm level characteristics such as, profitability, size, growth opportunities, asset tangibility, non-debt tax shield, volatility and liquidity on capital structure. Employing the cross-sectional data methodology, the researcher examines the capital structure determinants of 202 companies from FTSE 250 for the time period of 2002 – 2009. Seven variables multiple regression models are used to estimate the influence of firm level attributes on capital structure and capital structure is measured simultaneously by the ratios of total debt, long-term debt and short-term debt at both book value and market value of equity. The results obtained from four different regression models show that profitability and liquidity are negatively and significantly related to leverage. Also asset tangibility has a positive relationship with leverage, which is significant. Moreover the researcher finds that total debt ratio at market value of equity is the most important dependent variable as a proxy of capital structure, followed by long-term debt ratio at market value of equity.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29657.

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Date of creation: 04 Oct 2010
Date of revision: 01 Nov 2010
Handle: RePEc:pra:mprapa:29657

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Keywords: Capital structure; leverage; capital structure determinants; firm level characteristics; profitability; size; growth opportunities; asset tangibility; non-debt tax shield; volatility; liquidity;

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  1. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, Elsevier, vol. 13(2), pages 187-221, June.
  2. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  3. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  4. Nikolaos Eriotis & Dimitrios Vasiliou & Zoe Ventoura-Neokosmidi, 2007. "How firm characteristics affect capital structure: an empirical study," Managerial Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 33(5), pages 321-331.
  5. Philippe Gaud & Elion Jani & Martin Hoesli & André Bender, 2005. "The Capital Structure of Swiss Companies: an Empirical Analysis Using Dynamic Panel Data," European Financial Management, European Financial Management Association, European Financial Management Association, vol. 11(1), pages 51-69.
  6. A. A. Bevan & J. Danbolt, 2004. "Testing for inconsistencies in the estimation of UK capital structure determinants," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(1), pages 55-66.
  7. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, American Finance Association, vol. 43(1), pages 1-19, March.
  8. Aydin Ozkan, 2001. "Determinants of Capital Structure and Adjustment to Long Run Target: Evidence From UK Company Panel Data," Journal of Business Finance & Accounting, Wiley Blackwell, Wiley Blackwell, vol. 28(1-2), pages 175-198.
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Cited by:
  1. Nataša Šarlija & Martina Harc, 2012. "The impact of liquidity on the capital structure: a case study of Croatian firms," Business Systems Research, Society for Promotion of Business Information Technology (BIT), vol. 3(1), pages 30-36.

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