Capital structure determinants: an empirical study of French companies in the wine industry

Abstract

PurposeThe purpose of this paper is to explain the leverage of French wine companies (410 companies) in the wine industry during the period 2000‐2004.Design/methodology/approachDifferent classical capital structure theories are reviewed (trade‐off theory (TOT), pecking order theory (POT) and dynamic TOT) in order to formulate testable propositions concerning the determinants of debt levels of the French wine companies. A number of regression models (classical and panel techniques) are developed to test the static theory of trade‐off against the POT.FindingsThe results suggest that POT seems to better explain leverage of French wine companies. Significant differences in debt ratio were found between cooperatives and other legal structures. Debt ratios are also different between sub‐sectors (wholesalers, wine growers, wine makers, etc.).Practical implicationsCost of capital is one of the pillars of competitive advantage (or disadvantage) of companies. With the objective to minimize the cost of capital, it seems very important to know the potential determinants of an optimal capital structure.Originality/valueThis is a first study of capital structure determinants in the French wine industry which contributes to the current debate between competitive capital structure theories.