University of Twente Student Theses
The impact of macroeconomic factors on capital structure : Evidence across EU countries
Aga, Sara (2024) The impact of macroeconomic factors on capital structure : Evidence across EU countries.
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| Abstract: | The purpose of this thesis is to investigate how macroeconomic factors impact the firms’ capital structure using a dataset of 1298 non-financial listed firms within 16 EU countries during 2016-2019. By using the feasible generalized least square (FGLS) regression, this thesis tests the effects of macroeconomic variables on three leverage proxies, namely long-term, short-term, and total debt. The findings suggest that inflation acts as the strongest deterrent to leverage, while bank positively impacts firm leverage. GDP growth negatively impacts only long-term debt, implying that during economic expansion, firms in the EU prefer their retained earnings as financing means for their investments. The tax rate is positive and significant for long-term debt, whereas stock market development positively affects long-term debt but the opposite is true for short-term debt. It is also argued that the macroeconomic determinants of leverage differ between the manufacturing industry and other pooled industry categories. The empirical results show that GDP growth and tax are statistically significant only for the manufacturing industry. At the same time, inflation appears to be a more important determinant for other industries than the manufacturing sector. The results will support managers in adjusting their leverage levels to economic conditions in order to enhance their capital structure choices. Managers can have an ex-ante risk management plan by anticipating how changes in macroeconomic conditions, might influence their leverage decisions. This study contributes to existing literature by providing up-to-date empirical evidence on how a set of macroeconomic variables affect the leverage of firms operating under an economic and monetary union, while providing a foundation for the importance of considering several leverage proxies when assessing the macroeconomic factors that impact firms’ debt decisions. |
| Item Type: | Essay (Master) |
| Faculty: | BMS: Behavioural, Management and Social Sciences |
| Subject: | 85 business administration, organizational science |
| Programme: | Business Administration MSc (60644) |
| Link to this item: | https://purl.utwente.nl/essays/103315 |
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