Were Modern Capital Structure Theories Valid Before World War I?

37 Pages Posted: 21 Feb 2007

See all articles by Marc Deloof

Marc Deloof

University of Antwerp; Antwerp Management School

Wouter Van Overfelt

affiliation not provided to SSRN

Date Written: January 2007

Abstract

This study investigates whether capital structure theory can explain debt ratios in an historical environment which was characterized by poor investor protection, booming stock markets and strong banks, and in which corporate income tax did not affect capital structure. Our results, based on a unique, hand-collected sample of 556 firm-year observations for 129 listed companies in pre-World War I Belgium, are remarkably similar to findings for present-day samples. Leverage was positively related to asset tangibility, firm size and firm age, and it was negatively related to profitability and prior stock returns. Bank relationships were associated with lower leverage.

Keywords: capital structure, corporate income tax, investor protection, bank relationships, universal banks

JEL Classification: G32, G21

Suggested Citation

Deloof, Marc and Van Overfelt, Wouter, Were Modern Capital Structure Theories Valid Before World War I? (January 2007). Available at SSRN: https://ssrn.com/abstract=964159 or http://dx.doi.org/10.2139/ssrn.964159

Marc Deloof (Contact Author)

University of Antwerp ( email )

Prinsstraat 13
Faculteit TEW
Antwerpen, 2000
Belgium
+32 3 265 41 69 (Phone)
+32 3 265 47 99 (Fax)

HOME PAGE: http://https://www.uantwerpen.be/en/staff/marc-deloof/

Antwerp Management School ( email )

Het Brantijser
Sint-Jacobsmarkt 9-13
Antwerp, 2000
Belgium

Wouter Van Overfelt

affiliation not provided to SSRN ( email )

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