Determinants of Capital Structure Across European Countries

The research aim is to verify whether and how the impact of primary determinants of capital structure varies across European countries. Several firm-specific factors, as well as industry features are taken into account in the international comparative analysis, which also captures the problem of debt maturity. The study is based on the BACH-ESD database provided by the European Commission and includes 11 EU countries during the period 2000–2014. The results of the panel data models estimated for different countries and for three debt measures indicate that the impact of direct determinants of debt varies considerably across countries and depending on debt maturity. The differences occur in terms of both significance and direction. The research findings confirm the prevalence of the industry effect over the size effect in the capital structure, although the difference between the relative importance of the two effects varies across countries. The results also indicate the greater appropriateness of the pecking order theory for long-term debt, whilst the trade-off predictions appear more suitable for explaining short-term financing decisions.