Non-Linearity in the Determinants of Capital Structure: Evidence from UK Firms
30 Pages Posted: 26 Aug 2005
Date Written: May 2005
Using conditional quantile regression methods, we test for the existence of a non-linearity in the determinants of capital structure. We show that the size of the firm has a positive impact on the debt-equity ratio for low leverage firms and a negative impact for high leverage firms. Asset tangibility has a positive influence for low quantiles, whereas profitability and non-debt tax shield have a negative impact for high quantiles only. These results are consistent with a model of the firm's maximization program in which the firm's capital structure is a non-linear function of a vector of costs including asymmetric information costs and is subject to a debt ceiling.
Keywords: Capital structure, agency costs, quantile regression method, UK
JEL Classification: G32, C51
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