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Revisiting the capital-structure puzzle: UK evidence

Author

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  • Basil Al-Najjar
  • Khaled Hussainey

Abstract

Purpose - This paper seeks to explore the potential drivers of corporate capital structure. Design/methodology/approach - The paper applies both fixed effects panel models and random effects tobit models to examine this issue. A sample of 379 firms is used across the period from 1991 to 2002. Findings - It is found that corporate characteristics (firm size, firm risk, firm growth rate, firm profitability and asset tangibility) and corporate governance characteristics (board size and outside directorships) are the main drivers of capital structure of UK firms. In addition, the results show that changing the definition of capital structure may result in changing the sign and the significance of these potential drivers. Originality/value - The paper argues that another dimension of the capital structure puzzle can be introduced which is related to the definition of capital structure used in prior studies. It is worth noting that the aim of this paper is not to provide an optimal set of factors that may affect the decision of capital structure, but to highlight the effect of the different definitions of capital structure that can be used by different studies, which makes the comparison between such studies difficult or even erroneous.

Suggested Citation

  • Basil Al-Najjar & Khaled Hussainey, 2011. "Revisiting the capital-structure puzzle: UK evidence," Journal of Risk Finance, Emerald Group Publishing, vol. 12(4), pages 329-338, August.
  • Handle: RePEc:eme:jrfpps:v:12:y:2011:i:4:p:329-338
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Karartı, Tuncay, 2014. "Impact of ownership structure on leverage of non-financial firms in developing countries," MPRA Paper 61483, University Library of Munich, Germany.
    2. Demircioğlu, Emre, 2014. "Organization performance and happiness in the context of leadership behavior (case study base on psychological well-beings)," MPRA Paper 61484, University Library of Munich, Germany.
    3. Uwuigbe Olubukunola Ranti, 2013. "The Effects of Board Size and CEO Duality on Firms’ Capital Structure: A Study of Selected Listed Firms in Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(8), pages 1033-1043, August.
    4. San Martín, Pablo & Saona, Paolo, 2017. "Capital structure in the Chilean corporate sector: Revisiting the stylized facts," Research in International Business and Finance, Elsevier, pages 163-174.
    5. repec:vul:omefvu:v:8:y:2017:i:1:id:218 is not listed on IDEAS
    6. Khaled Hussainey & Khaled Aljifri, 2012. "Corporate governance mechanisms and capital structure in UAE," Journal of Applied Accounting Research, Emerald Group Publishing, vol. 13(2), pages 145-160, September.

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