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

30 Pages Posted: 26 Aug 2005

See all articles by Bassam Fattouh

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

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

Bassam Fattouh (Contact Author)

University of London - School of Oriental and African Studies (SOAS) ( email )

Thornhaugh Street
Russell Square: College Buildings 541
London, WC1H 0XG
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+020 7898 4053 (Phone)
+020 7898 4089 (Fax)

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

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London, WC1E 7HU
United Kingdom

Laurence Harris

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

Thornhaugh Street
London, WC1H 0XG
United Kingdom

Pasquale Scaramozzino

University of Rome II - Faculty of Economics ( email )

Via Columbia n.2
Rome, 00100
Italy

University of London - School of Oriental and African Studies (SOAS) ( email )

Thornhaugh Street
Russell Square: College Buildings 541
London, WC1H 0XG
United Kingdom

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

Thornhaugh Street
London, WC1H 0XG
United Kingdom

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