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How do Firm Characteristics Affect Capital Structure? Some UK Evidence


  • Akdal, Sinan


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.

Suggested Citation

  • Akdal, Sinan, 2010. "How do Firm Characteristics Affect Capital Structure? Some UK Evidence," MPRA Paper 29199, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:29199

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    References listed on IDEAS

    1. 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.
    2. 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, vol. 13(2), pages 187-221, June.
    3. Nikolaos Eriotis & Dimitrios Vasiliou & Zoe Ventoura-Neokosmidi, 2007. "How firm characteristics affect capital structure: an empirical study," Managerial Finance, Emerald Group Publishing, vol. 33(5), pages 321-331, April.
    4. 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, vol. 11(1), pages 51-69.
    5. A. A. Bevan & J. Danbolt, 2004. "Testing for inconsistencies in the estimation of UK capital structure determinants," Applied Financial Economics, Taylor & Francis Journals, vol. 14(1), pages 55-66.
    6. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    7. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, 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, vol. 28(1-2), pages 175-198.
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    Cited by:

    1. Barry Harrison & Theodorus Wisnu Widjaja, 2014. "The Determinants of Capital Structure: Comparison between Before and After Financial Crisis," Economic Issues Journal Articles, Economic Issues, vol. 19(2), pages 55-83, September.
    2. Šarlija Nataša & Harc Martina, 2012. "The impact of liquidity on the capital structure: a case study of Croatian firms," Business Systems Research, De Gruyter Open, vol. 3(1), pages 30-36, June.
    3. Maria Angelina Valadares Silva & António Melo Cerqueira & Elísio Brandão, 2017. "The Determinants of Capital Structure: Evidence from Non-financial Listed German Companies," FEP Working Papers 588, Universidade do Porto, Faculdade de Economia do Porto.
    4. Nataša Šarlija & Martina Harc, 2016. "Capital Structure Determinants of Small and Medium Enterprises in Croatia," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 14(3 (Fall)), pages 251-266.
    5. Ana Margarida Fernandes Afonso Correia & António Melo Cerqueira & Elísio Brandão, 2015. "Determinants of Corporate Capital Structure: Evidence from Non-financial Listed French Firms," FEP Working Papers 566, Universidade do Porto, Faculdade de Economia do Porto.

    More about this item


    capital structure; leverage; firm level characteristic; profitability; size; growth opportunities; asset tangibility; non-debt tax shield; volatility;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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