Robust and fragile determinants of capital structure - international evidence

Alalmai, S 2017, Robust and fragile determinants of capital structure - international evidence, Doctor of Philosophy (PhD), Economics, Finance and Marketing, RMIT University.

Document type: Thesis
Collection: Theses

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Title Robust and fragile determinants of capital structure - international evidence
Author(s) Alalmai, S
Year 2017
Abstract This thesis investigates the determinants of capital structure and seeks to establish the degree to which cross-country differences affect capital structure. The theoretical foundations of this research derive from various theories of capital structure, including the trade-off theory, agency cost theory and pecking order theory. The problem encountered with this type of research, and the cross-sectional models associated with it, is that the theories are not sufficiently precise to produce a limited set of determining variables, which invariably leads to data mining. To overcome this problem, this thesis employs extreme bounds analysis (EBA) to distinguish between robust and fragile determinants of capital structure.

The empirical analysis is based on a large and diverse data set collected from Datastream and the World Bank. The size, complexity and detail of the data set pose a unique advantage for the analysis intended in this thesis (information at the firm and country levels on 28 variables covering 17 countries from 2003 until 2013). The objective of the study is to show that a large number of variables that have been reported as statistically significant determinants of capital structure are, in fact, fragile and only appear significant because of a particular selection of explanatory variables.

Through the application of EBA and running almost 2 million regressions throughout two phases of the analysis, the results reveal important findings pertaining to the determinants of capital structure. The results confirm the consistency and robustness of several firm-specific determinants across several countries; with respect to country-specific determinants, it appears that they do not have a substantial effect on the leverage choice of firms. Additionally, the similarity of the robust determinants of capital structure within and across countries increases when using either the book value or market value measures of leverage, which means that the determinants of leverage vary, depending on which component of debt is analysed. Most importantly, proper inference requires full reporting and transparency, which means that p-values and related statistics should not be reported selectively.
Degree Doctor of Philosophy (PhD)
Institution RMIT University
School, Department or Centre Economics, Finance and Marketing
Subjects Finance
Keyword(s) Capital structure
Extreme bounds analysis
Trade-off theory
Pecking order theory
Agency theory
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Created: Fri, 22 Sep 2017, 08:40:07 EST by Adam Rivett
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