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Important factors in determining the capital structure of a company. Empirical evidence from Dutch companies

Nijenhuis, Koen te (2013) Important factors in determining the capital structure of a company. Empirical evidence from Dutch companies.

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Abstract:This study conducted a research to important factors that determine the capital structure of Dutch companies. Based on the the trade-off, pecking order and agency theory different hypotheses are established to test which factors are the most important in determining leverage. For the hypotheses, variables are developed and those are tested by using the ordinary least square (OLS) regression method. The data for this research is collected from Dutch non-financial publicly listed companies in the period between 2005 and 2009. The results of this research indicate that firm size and liquidity are the most important factors in determining leverage of Dutch companies. Bigger firms use more debt and companies with more liquidity use less debt, which is in accordance with the pecking order theory. Also important are the factors non-debt tax shield, retained earnings, profitability and priority shares. The trade-off variable non-debt tax shield is only important when examining all the variables of this study. Together the pecking order theory variables are the most important, but the result of profitability is positive related to leverage which is not in accordance with the expectations. Free cash flow, preferred shares and priority are all three significant when testing the agency variables, but the results for free cash flow and priority shares are the opposite of what was expected. The corporate control mechanism priority share is also important when all the variables are tested. There is not a strong indication, but heteroscedasticity might have an impact on the results of this study. This must be kept in mind when interpreting the results.
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/64528
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