Capital Structure Around the World: The Roles of Firm- and Country-Specific Determinants

Abstract

We analyze the importance of firm-specific and country-specific factors in the leverage choice of firms from 42 countries around the world. Our analysis yields two new results. First, we find that firm-specific determinants of leverage differ across countries, while prior studies implicitly assume equal impact of these determinants. Second, although we concur with the conventional direct impact of country-specific factors on the capital structure of firms, we show that there is an indirect impact because country-specific factors also influence the roles of firm-specific determinants of leverage.

Keywords: Capital structure, leverage, firm-specific factors, country-specific factors, international evidence

JEL Classification: F30, G10, G32