The analysis of debt levels in public firms: an international evidence

Abstract

PurposeThis study investigates if the widely held predictors of corporate leverage exhibit predictive consistency through times and across countries amidst country heterogeneities such as legal principles, state of economic development and protection of investors’ rights.Design/methodology/approachWe employ financial data for 3,197 unique firms from eight emerging and ten developed countries during the years 2001–2017 and use Tobit regression models, a two-step Fama−MacBeth(1973) regression and panel data regression techniques in order to ensure the robustness of estimates.FindingsWe find that firms in the civil French law system exhibit the highest average of a debt (around 27%), whereas firms based in high investors’ protection environment and in developed nations borrow significantly less than their counterparts. Furthermore, among predictors, including a firm's payout ratio, it returns on equity and the cash ratio except the P/B ratio have varying predictability for a corporate debt when firms are classified based on law systems, investors’ rights and the economic scenarios. The crisis period significantly affects the relationship of debt levels with legal systems, investors’ rights and economic development scenario. The author’s estimates are robust to alternate analysis.Originality/valueThis study is unique in its methodological approach and involves a considerably large number of countries and a longer study period for the results to be more generalizable compared to other existing studies.

The Selection of Control Variables in Capital Structure Research With Machine Learning

“…These variables are selected because of the previous studies' inconclusive results on their role as capital structure determinants. Some researchers used them in their model specifications and obtained contradictory results, while others did not consider them as determinants of leverage (i.e., Loncan & Caldeira, 2014;Chakrabarti & Chakrabarti, 2019;Pathak et al, 2021;Poornima & Kumar, 2022;Czerwonka & Jaworski, 2022;Panda et al, 2021, Zhu et al, 2021. Our findings have revealed that cash holdings, current ratio, and non-debt tax shield are crucial factors that substantially affect the leverage decisions of firms and should be controlled in empirical capital structure studies.…”

The selection of control variables in capital structure research with machine learning

“…These variables are selected because of the previous studies' inconclusive results on their role as capital structure determinants. Some researchers used them in their model specifications and obtained contradictory results, while others did not consider them as determinants of leverage (i.e., Chakrabarti & Chakrabarti, 2019;Czerwonka & Jaworski, 2022; Loncan & Caldeira, 2014; Panda et al., 2021; Pathak et al., 2021; Poornima & Kumar, 2022; Zhu et al., 2021). Our findings have revealed that cash holdings, current ratio, and non‐debt tax shield are crucial factors that substantially affect the leverage decisions of firms and should be controlled in empirical capital structure studies.…”

Corporate Financial Strategy in an Emerging Market: Evidence from Indonesia

“…In recent decades, there has been widespread interest and debate regarding the focus of financial strategy on determining capital structure to increase firm value (Kharabsheh et al 2017;Irawati et al 2021;Baihaqi et al 2021;Pathak et al 2021). This is due to the increasing role of financial strategy in companies, especially in developing countries (Kostini and Raharja 2019;Pochitaev and Filippova 2016;Pochitaev et al 2014).…”