Determinants of Capital Structure: New Evidence from Spanish Panel Data

Abstract

This paper analyzes the firm characteristics which are determinants of capital structure, according to different explanatory theories, and how institutional characteristics affect capital structure. We have developed a target adjustment model, which has then been confirmed by our empirical evidence. It highlights the fact that the transaction costs borne by Spanish firms are inferior to those borne by U.S. firms. Our results are consistent with tax and financial distress theories and with the interdependence between investment and financing decisions; they also provide additional evidence on the pecking order and free cash flow theories. Finally, the evidence obtained confirms the impact of some institutional characteristics on capital structure.

Keywords: Capital structure; Institutional characteristics; Cash flow; Free cash flow

JEL Classification: G31