Have We Resolved the Issues regarding International Capital Structure?: Empirical Evidence from the Companies of 30 OECD Countri,Used

Have We Resolved the Issues regarding International Capital Structure?: Empirical Evidence from the Companies of 30 OECD Countri,Used

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Most crosssectional deviation of international capital structure is caused by the heterogeneities of firm, industry, and countryspecific determinants rather than by legal environment. In particular, most variations observed from international capital structure arise from the heterogeneity of firmspecific characteristics. Collateral value of assets, firm size, and debt related tax shield benefit are generally viewed as the most influential factors in determining corporate leverage decision. If the heterogeneities at the level of firm, industry, and country are controlled, the English commonlaw countries surprisingly appear to rely highly on debtleverage, whereas the German civillaw countries are likely to be least levered. This finding is contrary to a "received wisdom" in the area of international capital structure. The stylized relationships between firmspecific determinants and capital structure obtained from crosssectional data are not generalized over time. Under a dynamic setting, the legal environment seems to play a significant role in determining the speed of adjustment of capital structure.

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