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Which factors of capital structure decisions are important: evidence from Dutch firms

Wei, Chen (2012) Which factors of capital structure decisions are important: evidence from Dutch firms.

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Abstract:This study explores the important factors which determine a firm’s capital structure using the Ordinary Linear Squares (OLS) technique. The focus is on trade-off theory and corporate governance (agency costs) with consideration of non-financial institutional headquartered in the Netherlands. Our empirical results indicate that profitability is not a significant factor. In other word, a firm can not make choice of leverage based on the extent of its profitability. Moreover, only when considering the variables under agency costs and corporate governance, priority shares negatively relate to the choice of leverage, otherwise, takeover defense is not regarded as a significant factor. In conclusion, leverage is mainly determined by non-debt tax shield, tangibility and free cash flow. The important influence of free cash flow verifies that Dutch firms prefer to avoid agency costs by increasing their leverage. Adequate cash prevents firms to issue debts. However, the evidence of heteroskedasticity shows the model may not be the most appropriate. So the further research could be focused on more possible influential factors from other theories with adopting several analytical methods to be precise.
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:http://purl.utwente.nl/essays/62546
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