The Determinants of Capital Structure: Capital Market-Oriented versus Bank-Oriented Institutions

Antoniou, Antonios; Guney, Yilmaz; Paudyal, Krishna

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 ratioswith 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.

Citation

Antoniou, A., Guney, Y., & Paudyal, K. (2008). The Determinants of Capital Structure: Capital Market-Oriented versus Bank-Oriented Institutions. Journal of Financial and Quantitative Analysis, 43(1), 59-92. https://doi.org/10.1017/s0022109000002751

• Journal Article Type: Article
• Online Publication Date: Apr 6, 2009
• Publication Date: 2008-03
• Deposit Date: Feb 13, 2020
• Publicly Available Date: Apr 20, 2020
• Journal: Journal of Financial and Quantitative Analysis
• Print ISSN: 0022-1090
• Electronic ISSN: 1756-6916
• Publisher: Cambridge University Press (CUP)
• Peer Reviewed: Peer Reviewed
• Volume: 43
• Issue: 1
• Pages: 59-92
• DOI: https://doi.org/10.1017/s0022109000002751
• Keywords: Dynamic capital structure; Leverage; Panel data; GMM
• Public URL: https://hull-repository.worktribe.com/output/3428152
• Publisher URL: https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/determinants-of-capital-structure-capital-marketoriented-versus-bankoriented-institutions/0F08AA876248523B3D84E645178323DB
• Related Public URLs: http://dro.dur.ac.uk/3998/