Determinants of Capital Structure: An Empirical Analysis of Firms In Industrialized Countries

This paper examines the determinants of capital structure of large corporations of industrialized countries (excluding financial institutions and regulated utilities), using five years of data ending in 1992. The study employs variables reflecting differing theoretical arguments on capital structure. We find evidence similar to previous empirical research using data for American companies. In particular, the pecking order theory of capital structure, with past profitability being the major determinant of leverage, is supported. For U.S. firms, but not for Japanese firms, tax factors also appear to be important determinants of capital structure. In general, variables proxying for firm size and growth also appear to be significant variables in explaining capital structure variations. Corporations from Germany and Italy appear to be most different from the American companies, with the former having lower and the latter higher leverage ratios relative to the U.S. corporations. Japanese companies appear to use less long‐term leverage, a result that is consistent with the close ties between Japanese firms and their banks — a relationship that permits a greater use of short‐term financing than is true in the U.S.