An Empirical Investigation of the Firm- and Country- Specific Debt Determinants in Four Nordic Countries

This work adds to the debate on the determinants of debt-equity mix providing new insights for four Nordic countries - Denmark, Finland, Norway and Sweden, less studied in the existing literature. Using a sample of 79 companies from Nasdaq Omx Nordic Index for the period 1995-2014, and a panel data approach, we draw on a complex set of firm- and country- specific variables to find the determinants for the total debt and, respectively, for the long-term debt ratios. Our results support the hypothesis that the regulatory quality is the most important determinant for both types of leverage, next to the domestic credit to private sector as percentage of GDP. Regarding the firm-specific factors, the tax implications of debt are an important determinant. The substitution effect seems to be not applicable for the Nordic firms due to the positive relation between the leverage and the non-debt tax shield, whatever the measure for the leverage is analysed. We also find that companies with high volatility in earnings have a higher risk of bankruptcy and borrow less than others. We reinforce that profitable companies avoid debt, and that large companies are more indebted than the small ones.