Capital structure determinants: Evidence from Spanish listed firms

Abstract

Using annual data that records leverage levels of 77 non-financial firms in Spain prior and during the financial crisis, we demonstrate that tangibility, size, volatility, profitability, non-debt tax shield, growth opportunities and industry effect are factors that determine the capital structure of a company. Our results show that leverage is positively and statistically significant with size, non-debt tax shield and industry-effect. Our findings illustrate that profitability; growth opportunity and volatility are negatively and statistically significant with the debt issues on the balance sheet of these public traded firms. We discuss the extent to which these results are consistent with empirical evidence illustrated by prior studies with reference to the 2008 financial crisis. Also, during the 2008 financial crisis the cost of financial distress is high, and as such when size is used as a proxy for the probability of bankruptcy a negatively relationship is inevitable. Lastly, majority of the listed firms were more attached by equity finance as a result of the reluctant behavior of the international investors and the falling Spanish economy.