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Capital structure and institutional status in the European Union

Author

Listed:
  • Alejandro Casino-Martínez

    (University of Valencia)

  • Jose López-Gracia

    (University of Valencia)

  • Reyes Mestre-Barberá

    (University of Valencia)

Abstract

This study analyses the financing of firms in the EU countries during the 2010–2018 period from the perspective of the potential influence of the institutional environment. Our model includes not only country-specific but also firm-level and macroeconomic factors. We find that a significant portion of the variation in firms´ leverage is explained by institutional factors, both legal and financial. Moreover, our results reveal that capital structure, in terms of leverage, has an inverse relationship with the distance to (institutional) frontier score, suggesting the existence of an institutional gap in the EU. Regarding the economic impact of the institutional effects, four institutional factors can be highlighted as the most relevant: (i) the level of financial development, (ii) the concentration of the banking system, (iii) the strength of the legal system or economic freedom, and (iv) the degree of financial intermediation.

Suggested Citation

  • Alejandro Casino-Martínez & Jose López-Gracia & Reyes Mestre-Barberá, 2025. "Capital structure and institutional status in the European Union," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 52(3), pages 457-492, August.
    • Handle: RePEc:kap:empiri:v:52:y:2025:i:3:d:10.1007_s10663-025-09649-z
    DOI: 10.1007/s10663-025-09649-z
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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