Capital structure and institutional setting: a decompositional and international analysis

Abstract

The legal and institutional setting is more and more influential in firms’ financial decisions. Our paper analyses firms’ capital structure in an international framework in order to assess the different level of debt use across countries and to identify both common and differential explanatory factors. Although the level of financial leverage is quite different, the factors that have traditionally driven capital structure decisions have much in common in all the legal and institutional settings. The performance and size of the firm, the assets tangibility and the growth opportunities have a relevant but differential effect across the different institutional systems. Consequently, our results suggest that the legal and institutional system of each country does not only affect firms’ capital structure but also creates the conditions to explain a differential effect of the common determinants of firms’ financial choices

Capital Structure Decisions During a Firm's Life Cycle

“…Previous studies have also highlighted the existence of systematic differences in the capital structure claims issued by companies operating in different institutional contexts (Rajan and Zingales 1995;Chittenden et al 1996;Demirgüç-Kunt and Maksimovic 1998;Hall et al 2004;Lopez-Iturriaga and Rodriguez-Sanz 2008;Utrero-González 2007). The efficiency of the institutional context can reduce problems of opportunism and asymmetric information, with significant effect on the relative magnitude of the costs and benefits associated to debt.…”

Capital structure adjustments in private business group companies

“…Dewaelheyns and Van Hulle, 2010). Second, we only include domestic business group affiliates, so that all companies we consider operate within the same institutional framework and are subject to the same tax regime, bypassing potential confounding effects from international tax optimization of capital structure (as described in Desai et al, 2004 or Overesch andWamser, 2010) and institutional differences across countries (Lo´pez-Iturriaga and Rodriguez-Sanz, 2008). Finally, we limit the analysis to larger companies because only companies filing complete financial statements provide sufficient details on internal debt financing.…”

Firm size and capital structure: evidence using dynamic panel data

“…According to these arguments, most empirical studies in fact report a positive sign for the relationship between size and leverage (Rajan and Zingales, 1995;Frank and Goyal, 2003;Gaud et al, 2005;and López-Iturriaga and Rodríguez-Sanz, 2008).…”