The determinants of capital structure: capital market-oriented versus bank-oriented institutions

A Antoniou, Y Guney, Krishna Paudyal

Research output: Contribution to journalArticle

230 Citations (Scopus)

Abstract

The paper investigates how firms operating in capital market-oriented economies (the U.K. and the U.S.) and bank-oriented economies (France, Germany, and Japan) determine their capital structure. Using panel data and a two-step system-GMM procedure, the paper finds that the leverage ratio is positively affected by the tangibility of assets and the size of the firm, but declines with an increase in firm profitability, growth opportunities, and share price performance in both types of economies. The leverage ratio is also affected by the market conditions in which the firm operates. The degree and effectiveness of these determinants are dependent on the country's legal and financial traditions. The results also confirm that firms have target leverage ratios with French firms being the fastest in adjusting their capital structure toward their target level and Japanese firms the slowest. Overall, the capital structure of a firm is heavily influenced by the economic environment and its institutions, corporate governance practices, tax systems, the borrower-lender relation, exposure to capital markets, and the level of investor protection in the country in which the firm operates.
LanguageEnglish
Pages59-92
Number of pages34
JournalJournal of Financial and Quantitative Analysis
Volume43
Issue number1
DOIs
Publication statusPublished - Mar 2008

Fingerprint

Capital markets
Capital structure
Leverage ratio
Corporate governance
Economic environment
Japan
Growth opportunities
Assets
Japanese firms
Firm profitability
Market conditions
System-GMM
Panel data
Investor protection
Share prices
France
Tax system
Germany

Keywords

  • banking
  • capital structure
  • capital market
  • banks

Cite this

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The determinants of capital structure : capital market-oriented versus bank-oriented institutions. / Antoniou, A; Guney, Y; Paudyal, Krishna.

In: Journal of Financial and Quantitative Analysis , Vol. 43, No. 1, 03.2008, p. 59-92.

Research output: Contribution to journalArticle

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AB - The paper investigates how firms operating in capital market-oriented economies (the U.K. and the U.S.) and bank-oriented economies (France, Germany, and Japan) determine their capital structure. Using panel data and a two-step system-GMM procedure, the paper finds that the leverage ratio is positively affected by the tangibility of assets and the size of the firm, but declines with an increase in firm profitability, growth opportunities, and share price performance in both types of economies. The leverage ratio is also affected by the market conditions in which the firm operates. The degree and effectiveness of these determinants are dependent on the country's legal and financial traditions. The results also confirm that firms have target leverage ratios with French firms being the fastest in adjusting their capital structure toward their target level and Japanese firms the slowest. Overall, the capital structure of a firm is heavily influenced by the economic environment and its institutions, corporate governance practices, tax systems, the borrower-lender relation, exposure to capital markets, and the level of investor protection in the country in which the firm operates.

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