Determinants of capital structure in Australia: an analysis of important factors

Abstract

PurposeThe purpose of this paper is to examine the many factors that affect the leverage decisions of publicly traded Australian companies, and tests to see whether these factors are reliably important. The relationship between these factors and the leverage decision is examined.Design/methodology/approachThis study uses a multiple linear panel regressions to study the relationship between the factors and leverage.FindingsThe authors find a set of eight factors which are reliably important for capital structure decision making. These factors include: profitability, log of assets, median industry leverage, industry growth, market to book ratio, tangibility, capital expenditure, and investment tax credits. The empirical evidence indicates weakening support for the pecking order hypothesis and increasing support for the trade-off theory in Australia.Originality/valueThis paper examines the determinants of capital structure using Australian firms and provides a comprehensive empirical support for the capital structure theories.