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Determinants of Capital Structure: An Expanded Assessment

Published online by Cambridge University Press:  09 December 2022

Toshinori Fukui ,
Todd Mitton Open the ORCID record for Todd Mitton [Opens in a new window]  and
Robert Schonlau
Toshinori Fukui
Affiliation:
Texas A&M University, Department of Finance tfukui@mays.tamu.edu
Todd Mitton*
Affiliation:
Brigham Young University, Marriott School of Business
Robert Schonlau
Affiliation:
Colorado State University, Department of Finance and Real Estate schonlau@colostate.edu
*
tm@byu.edu (corresponding author)
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Abstract

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Using a standardized methodology, we empirically evaluate 55 proposed determinants of capital structure in terms of statistical significance, economic significance, and identification. We find that robust and economically important determinants of debt ratios are relatively few in number. Nevertheless, because each determinant relates to one of five market imperfections—taxes, distress costs, information asymmetry, agency costs, or supply frictions—we draw conclusions from the evidence as a whole regarding the explanatory power of different capital structure theories. We find greater support for pecking order theory and supply-related theories, with less support for traditional tradeoff theory and agency theory.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 6 , September 2023 , pp. 2446 - 2488
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

For generously sharing data, we thank Ramin Baghai, Lucian Bebchuk, Efraim Benmelech, Adam Bonica, Filipe Campante, Quoc-Anh Do, John Graham, Barry Hirsch, Gerard Hoberg, Jay Li, David Macpherson, Stephen McKeon, Lalitha Naveen, Renana Peres, Gordon Phillips, Alessio Saretto, Matthew Serfling, Jared Smith, Robert Tumarkin, Philip Valta, Ekaterina Volkova, Jing Wang, Jin Xu, and Ayako Yasuda. For helpful comments, we thank an anonymous referee, Lee Biggerstaff, François Derrien, Brad Goldie, John Graham, Ben Iverson, Jonathan Karpoff, Jared Smith, Serafeim Tsoukas, Ekaterina Volkova, and David Yin. For excellent research assistance, we thank Greg Adams, Troy Carpenter, Spencer Crawford, Paige Nelson, Marshall Ringwood, and Logan Smith.

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