Do Country and Industry Patterns Contribute to an Optimal Capital Structure?

Abstract

We investigate evidence the existence of optimal capital structure and carry out an examination across countries and industries to detect systematic capital structure differences. In particular, we examine whether firms aim for an optimal capital structure through changing their debt ratios over time. We find evidence for the presence of systematic patterns in debt ratios and in the ways firms adjust their capital structures. This is indirect evidence for the optimal capital structure model and suggests firms seek the correct capital structure based on firm, industry, and country factors.