A Study of Characteristics and Determinants of Capital Structure in the US Context.
[Dissertation (University of Nottingham only)]
This paper aims to explore the characteristics and determinants of capital structure of listed US companies. Mainly three key theories on capital structure (the static trade-off theory, the pecking order theory and the agency cost theory) are discussed specifically. The predicted relevant determinants are analysed and evaluated. Employing the balanced panel data methodology, the capital structure determinants of 266 companies from Standard & Poor’s 500 Index for the time period of 1998-2012 are examined critically. Nine potential determinants of US listed companies’ capital structure that will be examined are non-debt shields, bankruptcy costs, tangibility, profitability, growth, size, liquidity, free cash flow, and industry type. The evidence from the empirical findings have indicated the theories of capital structure explain the US listed firms’ gearing ratio to certain extent. However, the empirical results demonstrate a relative disparity between the empirical result and theoretical prediction on some variables. It is shown that the tangibility, profitability, growth and bankruptcy costs are statistically significant, so they are regarded as important determinants for US listed firms’ financial leverage. However, not all explanatory variables are significant. There is not enough evidence to demonstrate the determinants, non-debt shields, size, liquidity, free cash flow and industry type play a key role in the firms’ capital structure decisions with 5% significance level. This paper has several drawbacks, consisting of data availability, firm selection and certain factors not taken into consideration. More rigorous empirical tests are required.
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