Non-Linearity in the Determinants of Capital Structure: Evidence from UK Firms

Fattouh, Bassam; Harris, Laurence; Scaramozzino, Pasquale

doi:10.2139/ssrn.789304

Non-Linearity in the Determinants of Capital Structure: Evidence from UK Firms

30 Pages Posted: 26 Aug 2005

Bassam Fattouh

University of London - School of Oriental and African Studies (SOAS); University of London - Centre for Financial and Management Studies (CeFIMS)

Laurence Harris

University of London - Centre for Financial and Management Studies (CeMIS)

Pasquale Scaramozzino

University of Rome II - Faculty of Economics; University of London - School of Oriental and African Studies (SOAS); University of London - Centre for Financial and Management Studies (CeFIMS)

Date Written: May 2005

Abstract

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

Suggested Citation: Suggested Citation

Fattouh, Bassam and Harris, Laurence and Scaramozzino, Pasquale, Non-Linearity in the Determinants of Capital Structure: Evidence from UK Firms (May 2005). Available at SSRN: https://ssrn.com/abstract=789304 or http://dx.doi.org/10.2139/ssrn.789304