Testing the static trade-off theory and the pecking order theory of capital structure: Evidence from Dutch listed firms

This paper aims at testing static trade off and pecking order theory predictions on capital structure in a Dutch context. Hypotheses derived from the static trade off and pecking order were tested by using an OLS regression model.. Moderate support has been found for the both theories. This paper makes use of two types of debt ratios as the independent variable: Long term debt ratio and total debt ratio. Both ratios are book values. Firm size and asset tangibility were found to significantly explain a part of the long term debt ratio. While firm size, asset tangibility, profitability and liquidity were found to significantly account for a part of the total debt ratio.