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The Determinants of Capital Structure: Evidence from Non-financial Listed German Companies

Maria Angelina Valadares Silva (), António Melo Cerqueira () and Elísio Brandão ()
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Maria Angelina Valadares Silva: FEP-UP, School of Economics and Management, University of Porto
António Melo Cerqueira: FEP-UP, School of Economics and Management, University of Porto
Elísio Brandão: FEP-UP, School of Economics and Management, University of Porto

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: In this paper we analyze the determinants of the leverage choice of German firms and analyze which financial theory better explains the leverage ratio, more specifically the trade-off theory, the pecking order theory, the agency theory and the market timing theory. Additionally, we examine three effects: year, economic crisis and industry. The goal is to see if the results change when we introduce these effects. We estimate our econometric model by using panel data and Ordinary Least Squares. Our sample includes 443 non-financial German companies over the period of 2005 to 2014. To test the impact on the results to the use of debt with different maturities we use two regressions: total debt and long-term debt. The independent variables that we examine are: market-to-book, size, profitability, tangibility, risk and non-debt tax shield. The results show that the main theories apply to German firms and all explanatory variables are statistically significant. We can also conclude that the three effects are relevant in the capital structure for German firms. With regard to the economic crisis effect, the results show that the variable size become statistically significant during the period 2009 to 2014.

Keywords: Capital structure; trade-off theory; pecking order theory; market timing theory; Fama and French industry classification (search for similar items in EconPapers)
JEL-codes: C33 G10 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn
Date: 2017-02
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