A Study of the Capital Structure Characteristics Across Diverse Industries

Abstract

The matter of how a company's capital is structured is frequently discussed in literature related to this topic since 1950s. Nevertheless, theories on optimal capital structure are categorized into different approaches, with their features often controversial and conflicting. The aim of this article is to provide a comprehensive review of the characteristics as well as determinants of the capital structure in capital-intensive, labor-intensive, and tech & healthcare industries in different countries, based on two main theories in capital structure- pecking order theory and static trade-off theory. The paper also highlights the important relationship between financial leverage and the companys performance and therefore tries to find the optimal capital structure. The study is composed of two main sections. The first part is to organize the previous study and various definitions of capital structure and some relevant theories. The second part shows how features of the leverage ratio vary across industries and how companies create value out of it. This paper proposes, after examining previous literature, that the factors influencing the optimal capital structure vary among companies depending on their characteristics. Companies in various sectors have their preferences to make the most use of debt and equity. It is hard to generalize a specific optimal ratio that suits every corporation.