Testing for inconsistencies in the estimation of UK capital structure determinants

Bevan, A.A. and Danbolt, J. (2004) Testing for inconsistencies in the estimation of UK capital structure determinants. Applied Financial Economics, 14(1), pp. 55-66. (doi: 10.1080/0960310042000164220)

Abstract

This article analyses the determinants of the capital structure of 1054 UK companies from 1991 to 1997, and the extent to which the influence of these determinants are affected by time-invariant firm-specific heterogeneity. Comparing the results of pooled OLS and fixed effects panel estimation, significant differences in the results are found. While the OLS results are generally consistent with prior literature, the results of our fixed effects panel estimation contradict many of the traditional theories of the determinants of corporate financial structure. This suggests that results of traditional studies may be biased owing to a failure to control for firm-specific, time-invariant heterogeneity. The results of the fixed effects panel estimation find larger companies to have higher levels of both long-term and short-term debt than do smaller firms, profitability to be negatively correlated with the level of gearing, although profitable firms tend to have more short-term bank borrowing than less profitable firms, and tangibility to positively influence the level of short-term bank borrowing, as well as all long-term debt elements. However, the level of growth opportunities appears to have little influence on the level of gearing, other than short-term bank borrowing, where a significant negative relationship is observed.

• Item Type: Articles
• Keywords: Capital structure, dynamics, panel data, debt, gearing.
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Danbolt, Prof Jo
• Authors: Bevan, A.A., and Danbolt, J.
• Subjects: H Social Sciences > HB Economic Theory
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: Applied Financial Economics
• Publisher: Taylor and Francis
• ISSN: 1466-4305
• Copyright Holders: Copyright © 2004 Taylor and Francis
• First Published: First published in Applied Financial Economics 14(1):55-66
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher.