Determinants of Corporate Capital Structure: Australian Evidence
This study seeks to provide evidence on the importnace and significance of capital structure determinants in the Australian context. The analysis was implemented on a sample of 226 Australian companies from 1977 to 1985. The following results are obtained. Company non-debt tax shields display a negative relationship with respect to each of the debt ratios. This evidence is consistent with the theory proposed by DeAngelo and Masulis (1980) that firms with non-debt tax shields at their disposal can use these as substitutes for interest tax shields. The evidence canvassed also lends some support to the pecking order hypothesis of Myers and Majluf (1984). Specifically, significant negative relationships between profitability and all debt ratios are found. The implication is that the sample of firms studied prefer to finance investments with internally retained funds before issuing debt. Some evidence of a size effect is present and this indicates that the larger firms in the sample tended to employ more debt in their capital structures. The positive relationship between cash holdings and debt ratios indicates some support for the free cash flow hypothesis of Jensen (1986), although these estimates are not significant. No support for the growth opportunity and collateral value attributes as determinants of deb ratios can be discerned, consistent with Titman and Wessels (1988).
|Date of creation:||01 Jun 1991|
|Date of revision:|
|Publication status:||Published as: Chiarella, C., Pham, T., Sim, A. B. and Tan, M. 1992, "Determinants of Corporate Capital Structure: Australian Evidence", in G.S. Rhee and R. P. Chan, Pacific Basin Capital Markets Research, Vol. III, North Holland, Amsterdam, pp. 139-158.|
|Contact details of provider:|| Postal: PO Box 123, Broadway, NSW 2007, Australia|
Phone: +61 2 9514 7777
Fax: +61 2 9514 7711
Web page: http://www.uts.edu.au/about/uts-business-school/finance
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dammon, Robert M & Senbet, Lemma W, 1988. " The Effect of Taxes and Depreciation on Corporate Investment and Financial Leverage," Journal of Finance, American Finance Association, vol. 43(2), pages 357-73, June.
- Altman, Edward I, 1984. " A Further Empirical Investigation of the Bankruptcy Cost Question," Journal of Finance, American Finance Association, vol. 39(4), pages 1067-89, September.
- DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
- Galai, Dan & Masulis, Ronald W., 1976. "The option pricing model and the risk factor of stock," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 53-81.
- Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
- Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
- 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.
- Kraus, Alan & Litzenberger, Robert H, 1973. "A State-Preference Model of Optimal Financial Leverage," Journal of Finance, American Finance Association, vol. 28(4), pages 911-22, September.
- Marcus, Alan J, 1983. " The Bank Capital Decision: A Time Series-Cross Section Analysis," Journal of Finance, American Finance Association, vol. 38(4), pages 1217-32, September.
- Hamada, Robert S, 1972. "The Effect of the Firm's Capital Structure on the Systematic Risk of Common Stocks," Journal of Finance, American Finance Association, vol. 27(2), pages 435-52, May.
- 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.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
- Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
- Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
- Masulis, Ronald W, 1983. " The Impact of Capital Structure Change on Firm Value: Some Estimates," Journal of Finance, American Finance Association, vol. 38(1), pages 107-26, March.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:uts:wpaper:3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Ford)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.