Fundamental Drivers of Capital Structure: Evidence from Publicly Traded Non-financial U.S. Firms
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Abstract
This paper investigates the influence of relevant factors in determining capital structure with their respective extent. Excluding financial firms, all publicly traded American firms for the period of 1950-2005 are considered as the sample firms. Five fundamental factors that may explain leverage are growth opportunities, tangible assets, firm profit, firm size, and inflation. I use simple linear regression, BIC, and AIC, to identify the reliably consistent influential factors and a model. Using total leverage to market value of asset (TLMA) as my main model for the entire estimation period (1950-2005), I find that tangibility and firm size are significantly and positively related to leverage. The growth opportunities is also positively related to leverage but statistically insignificant. But firm profit has a significant negative relationship with leverage confirming the implication of the pecking order hypothesis.Keywords: static trade-off theory, pecking order theory, market timing theory, signaling theory, agency cost theoryJEL Classifications: G1, G3, G10, G20, G32DOI: https://doi.org/10.32479/ijefi.8663Downloads
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Published
2019-10-24
How to Cite
Sharif, M. I. (2019). Fundamental Drivers of Capital Structure: Evidence from Publicly Traded Non-financial U.S. Firms. International Journal of Economics and Financial Issues, 9(6), 113–122. Retrieved from https://econjournals.com/index.php/ijefi/article/view/8663
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