Determinants of Corporate Capital Structure: A Theoretical Integration and Some Empirical Evidences

Abstract

This research reviews all of the relevant important theories and concepts developed in corporate capital structure until till date in an aggregate manner. The empirical part of the study reveals that the leverage ratios defined in short-term debts, long-term debts, total debts and book value of assets are correlated. Similarly, the leverage ratios defined in short-term debts, long-term debts, total debts and market value of assets are correlated. However, book value based and market value based leverage ratios are not correlated. The leverage ratios defined in earnings before interest and taxes over interest and earnings before interest, taxes and depreciation over interest are positively perfectly correlated. Besides, short-term loans are three times more compare to long term debts, firms are reluctant in paying tax and allotment in research and development expenses are insufficient. In addition, industry median average, non-debts tax shield, uniqueness (R&D) positively significantly affects financial leverage and, and size, tangibility, tax rate, dividend pay-out, agency cost, business risk, GDP growth, and money growth negatively significantly affects financial leverage. The selling, general and administrative expenses positively affects short-term debts, negatively affects long-term debts and have no significant effects on total debts. Last but not least, human capital cost do not have affect on any kind of leverage.