Capital Structure Decisions Around the World: Which Factors are Reliably Important?
Abstract: This paper examines which leverage factors are consistently important for capital structure decisions of firms around the world. The most reliable determinants are past leverage, tangibility, firm size, research and development, depreciation expenses, industry median leverage, and liquidity. The signs of the reliable determinants give consistent support to the dynamic trade off theory. The impact of leverage factors on capital structure are systematically driven by cross-country differences in the quality of institutions that affect bankruptcy costs, agency costs, tax benefits of debt, agency costs of equity, and information asymmetry costs.