Determinants of Capital Structure: An empirical study of UK firms

Chen, Lujie (2007) Determinants of Capital Structure: An empirical study of UK firms. [Dissertation (University of Nottingham only)] (Unpublished)

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Capital structure has been one of the most controversial issues in the ground of finance during past years. There are a number of existing theories and empirical studies observing patterns involved in choosing a capital structure, however until now, there is no universal one. With the objective to provide an insight into determinants influence a firm's level of debt, we apply ANOVA and multiple regression analysis of secondary data on 80 UK public companies operating in 10 industries. In addition, the study on the impacts of revised IAS 19 on pension deficit makes this dissertation differentiated from existing ones. We divide the time span into pre-pension scheme period 2001-2004 and post-pension scheme 2005-2006 to examine how the adjustment at balance sheet affects firm's capital structure.

The study demonstrates a disparity between empirical results and theoretical predictions. Overall, the model has a relatively low explanatory power and most of variables themselves show a conflicting sings and levels of significance in terms of long-term and short-term debt ratios. Growth rate, firm size, tax shields and asset compositions are significantly correlated to particular type of debt in different time period. In addition, firms do adjust their leverage ratios facing the disclosure of pension fund as a part of long-term liability.

This research provides analysis tools for financial managers when looking to raise capital and assists managers with indications of what the market is anticipating. However, unavoidable research limitations suggest further studies.

Item Type: Dissertation (University of Nottingham only)
Keywords: capital Structure, leverage
Depositing User: EP, Services
Date Deposited: 06 Mar 2008
Last Modified: 02 Feb 2018 16:12

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