The choice of capital structure: A study on energy industry in a developing country

Abstract

The choice of capital structure has greatly contributed to the success of the firms in general and energy in particular. This study uses a sample data set of 250 energy firms over the period 2010-2019, and by using generalized least square (GLS) method to perform a survey. The main factors in this study include profitability, firm age, state shareholding and depreciation tax shield, etc. The study found that except firm growth, all factors including firm performance, age of firm, size of firm, asset structure, short-term solvency, and depreciation have significantly affected firm’s capital structure choice in the case of energy industry in a developing country. Furthermore, a positive effect was also found for size of firm and asset structure while a negative effect was detected for other factors such as firm performance, asset structure, firm age, short-term solvency, and depreciation. Through this research, we also conclude that the theory of pecking order, and the theory of representative cost are known as the basis for financial managers to build sound capital structures for businesses.