The determinants of capital structure: capital market-oriented versus bank-oriented institutions

A Antoniou, Y Guney, K Paudyal - Journal of financial and …, 2008 - cambridge.org
A Antoniou, Y Guney, K Paudyal
Journal of financial and quantitative analysis, 2008cambridge.org
The paper investigates how firms operating in capital market-oriented economies (the UK
and the US) and bank-oriented economies (France, Germany, and Japan) determine their
capital structure. Using panel data and a two-step system-GMM procedure, the paper finds
that the leverage ratio is positively affected by the tangibility of assets and the size of the firm,
but declines with an increase in firm profitability, growth opportunities, and share price
performance in both types of economies. The leverage ratio is also affected by the market …
The paper investigates how firms operating in capital market-oriented economies (the U.K. and the U.S.) and bank-oriented economies (France, Germany, and Japan) determine their capital structure. Using panel data and a two-step system-GMM procedure, the paper finds that the leverage ratio is positively affected by the tangibility of assets and the size of the firm, but declines with an increase in firm profitability, growth opportunities, and share price performance in both types of economies. The leverage ratio is also affected by the market conditions in which the firm operates. The degree and effectiveness of these determinants are dependent on the country's legal and financial traditions. The results also confirm that firms have target leverage ratioswith French firms being the fastest in adjusting their capital structure toward their target level and Japanese firms the slowest. Overall, the capital structure of a firm is heavily influenced by the economic environment and its institutions, corporate governance practices, tax systems, the borrower-lender relation, exposure to capital markets, and the level of investor protection in the country in which the firm operates.
Cambridge University Press
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