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Revisiting the capital‐structure puzzle: UK evidence

Author

Listed:
  • Basil Al‐Najjar
  • Khaled Hussainey

Abstract

Purpose - This paper seeks to explore the potential drivers of corporate capital structure. Design/methodology/approach - The paper applies both fixed effects panel models and random effects tobit models to examine this issue. A sample of 379 firms is used across the period from 1991 to 2002. Findings - It is found that corporate characteristics (firm size, firm risk, firm growth rate, firm profitability and asset tangibility) and corporate governance characteristics (board size and outside directorships) are the main drivers of capital structure of UK firms. In addition, the results show that changing the definition of capital structure may result in changing the sign and the significance of these potential drivers. Originality/value - The paper argues that another dimension of the capital structure puzzle can be introduced which is related to the definition of capital structure used in prior studies. It is worth noting that the aim of this paper is not to provide an optimal set of factors that may affect the decision of capital structure, but to highlight the effect of the different definitions of capital structure that can be used by different studies, which makes the comparison between such studies difficult or even erroneous.

Suggested Citation

  • Basil Al‐Najjar & Khaled Hussainey, 2011. "Revisiting the capital‐structure puzzle: UK evidence," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 12(4), pages 329-338, August.
    • Handle: RePEc:eme:jrfpps:15265941111158505
    DOI: 10.1108/15265941111158505
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    Citations

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    Cited by:

    1. Akhtar, Muhammad & Haris, Muhammad & Naveed, Hafiz Muhammad & Rasool, Yasir & Al-Faryan, Mamdouh Abdulaziz Saleh, 2024. "Electricity shortfalls and financial leverage of listed firms in Pakistan," Utilities Policy, Elsevier, vol. 87(C).
    2. M N, Nikhil & Chakraborty, Suman & B M, Lithin & Lobo, Lumen Shawn, 2023. "Does the adoption of Ind AS affect the performance of firms in India?," MPRA Paper 117247, University Library of Munich, Germany, revised 18 Apr 2023.
    3. Muhammad Aqib Hameed, 2024. "The Impact of Institution Ownership on Firm Leverage of Non-Financial Firms Pakistan Stock Exchange (PSE)," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(3), pages 333-337.

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