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Fundamental Drivers of Capital Structure: Evidence from Publicly Traded Non-financial U.S. Firms

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  • Meskat Ibne Sharif

    (MSc. (Financial Economics) Student, Otto von Guericke University Magdeburg, Universit tsplatz 2, 39106 Magdeburg, Germany.)

Abstract

This paper investigates the influence of relevant factors in determining capital structure with their respective extent. Excluding financial firms, all publicly traded American firms for the period of 1950-2005 are considered as the sample firms. Five fundamental factors that may explain leverage are growth opportunities, tangible assets, firm profit, firm size, and inflation. I use simple linear regression, BIC, and AIC, to identify the reliably consistent influential factors and a model. Using total leverage to market value of asset (TLMA) as my main model for the entire estimation period (1950-2005), I find that tangibility and firm size are significantly and positively related to leverage. The growth opportunities is also positively related to leverage but statistically insignificant. But firm profit has a significant negative relationship with leverage confirming the implication of the pecking order hypothesis.

Suggested Citation

  • Meskat Ibne Sharif, 2019. "Fundamental Drivers of Capital Structure: Evidence from Publicly Traded Non-financial U.S. Firms," International Journal of Economics and Financial Issues, Econjournals, vol. 9(6), pages 113-122.
    • Handle: RePEc:eco:journ1:2019-06-14
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    More about this item

    Keywords

    static trade-off theory; pecking order theory; market timing theory; signaling theory; agency cost theory;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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