Structure theories: Panel data evidence from the United Kingdom

Abstract

The purpose of this study is to identify the factors affecting the capital structure of UK quoted companies during 2000-2012, based on the main theories of capital structure. We try to find out which of these theories (trade-off theory, agency cost theory, pecking-order theory) are best suited for empirical explanation of the capital structure of the UK firms. Therefore, the case for consideration in this study is to analyze the variables for each of the theories and examine which one best explains the index of long-term debt leverage. We use the method of panel data with random effect. This paper’s differentiation turned out that in UK the investment companies have no impact on their borrowing levels, thus lending mainly serves their current liabilities. Our findings are more consistent with the trade-off theory.\tKey words: Capital structure, pecking-order theory, trade-off theory, UK firms.