Capital structure around the world: What firm- and country-specific determinants really matter?
This study contributes to the international analysis of capital structure. It tests the importance of firm-specific and country-specific factors in explaining the leverage choice of firms from 42 countries around the world. We find that the conventional firm-specific factors explain leverage relatively well in both developed and developing countries. In analyzing international data, most recent studies implicitly assume that the impact of firm-specific factors is the same across countries. We perform basic statistical tests and reject this implicit assumption. Besides documenting the direct impact of country-specific variables on the capital structure, we also document an indirect impact, because country-specific factors influence a country's firm-specific determinants. Although we confirm the incremental contribution of country-specific variables, our analysis shows that firm-specific factors continue to be the dominant determinants of corporate capital structure.