Proceedings of the 30th International Academic Conference, Venice

CAPITAL STRUCTURE DETERMINANTS INFLUENCE: A COMPARATIVE STUDY

OSCAR BRIONES, MELISA CHANG

Abstract:

The study investigate the determinants of capital structure in a developing economy considering the Pecking Order and the Trade-Off Theory. It uses data from two hundred and ten Ecuadorian firms from the top thousand companies of 2013 which considers myriad of industries. The independent variables chosen, according to data availability and literature review, are Tangibility measured by fixed assets over total assets; Profitability measured by return on assets (ROA) and Firm Size measured by the natural logarithm of sales. However, some of these regressors were dichotomycally divided to select the best ratio combination and obtain a more robust model. The dependent variable, leverage, is measured by total debt ratio. The research used cross-sectional methodology using Ordinary Least Square (OLS). The Multivariate regression analysis concludes that there is a statistically positive relationship between firm size and leverage as stated by both theories. However, tangibility and profitability are statistically negative related with debt level. Profitability behaves under the Pecking Order theory, while tangibility does not follow neither of the theories. These findings are compare and contrast against other authors researches following the same trend. We theorize that Ecuadorian firms combine both theories when deciding their capital structure. Moreover, the variable growth is found to be not statistically significant in this market. However, the variable Non-Debt Tax Shield was omitted from the model due to the lack of information.

Keywords: Capital Structure, Pecking Order Theory, Trade-Off Theory, leverage, firm size, profitability, tangibility.

DOI: 10.20472/IAC.2017.030.007

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