The Determinants of Capital Structure Choice: A Survey of European Firms

Abstract

We survey managers of firms in seventeen European countries on their capital structure choice and its determinants. Our main objective is to explore the link between theory and practice of capital structure. Preliminary analysis of the survey shows some interesting findings. Financial flexibility, credit rating and tax advantage of debt are the most important factors influencing the debt policy while the earnings per share dilution is the most important concern in issuing equity. Evidence also supports that the level of interest rate and the share price are important considerations in selecting the timing of the debt and equity issues respectively. Hedging consideration are the primary factors influencing the selection of the maturity of debt or when raising capital abroad. We also propose to compare the responses of European managers with those of the U.S. in Graham and Harvey (2001) as well as across countries based on the English, French, German and Scandinavian law. This analysis would be completed by March 2002.