Journal of Accounting and Taxation
Subscribe to JAT
Full Name*
Email Address*

Article Number - 47BCE9561789


Vol.8(7), pp. 81-100 , December 2016
DOI: 10.5897/JAT2016.0228
ISSN: 2141-6664



Full Length Research Paper

Structure theories: Panel data evidence from the United Kingdom



Dimitrios Vortelinosa*
  • Dimitrios Vortelinosa*
  • Lincoln Business School, University of Lincoln, Lincoln, UK.
  • Google Scholar
Konstantinos Gkillas
  • Konstantinos Gkillas
  • Department of Business Administration, University of Patras, University Campus – Rio, P.O. Box 1391, Patras 26500, Greece.
  • Google Scholar
Georgios Alexopoulosc
  • Georgios Alexopoulosc
  • Department of Business Administration, University of Patras, University Campus – Rio, P.O. Box 1391, Patras 26500, Greece.
  • Google Scholar







 Received: 30 July 2016  Accepted: 24 October 2016  Published: 31 December 2016

Copyright © 2016 Author(s) retain the copyright of this article.
This article is published under the terms of the Creative Commons Attribution License 4.0


The purpose of this study is to identify the factors affecting the capital structure of UK quoted companies during 2000-2012, based on the main theories of capital structure. We try to find out which of these theories (trade-off theory, agency cost theory, pecking-order theory) are best suited for empirical explanation of the capital structure of the UK firms. Therefore, the case for consideration in this study is to analyze the variables for each of the theories and examine which one best explains the index of long-term debt leverage. We use the method of panel data with random effect. This paper’s differentiation turned out that in UK the investment companies have no impact on their borrowing levels, thus lending mainly serves their current liabilities. Our findings are more consistent with the trade-off theory.

Key words: Capital structure, pecking-order theory, trade-off theory, UK firms.

Acaravcı S, Doğukanlı H (2004). Türkiye'de Sermaye Yapısını Etkileyen Faktörlerin İmalat Sanayinde Sınanması. İktisat İşletme ve Finans 19(225):43-57.

 

Aggarwal R, Jamdee S (2003). Determinants of capital structure: Evidence from the G-7 countries. Financ. Manag. Assoc. Meet.

 

Akdal S (2010). How do Firm Characteristics Affect Capital Structure? Some UK Evidence. Working Paper, University Library of Munich, Germany.

 

Akhtar S (2005). The determinants of capital structure for Australian multinational and domestic corporations. Aust. J. Manag. 30(2):321-341.
Crossref

 

Alti A, Sulaeman J (2012). When do high stock returns trigger equity issues? J. Financ. Econ. 103(1):61-87.
Crossref

 

Anderson M (2002). An analysis of the first ten volumes of research in accounting, business and financial history. Account. Bus. Financial Hist. 12(1):1-24.
Crossref

 

Ang JS, Jess HC, McConnell JJ (1982). The administrative costs of corporate bankruptcy: A note. J. Finance 37.1: 219-226.
Crossref

 

Ang JS (1991). Agenda for research in Pacific-Basin finance. In Pacific-Basin Capital Markets Research, edited by SG Rhee and RP Chang, 2:201-210.

 

Ang JS (1992). On the theory of finance for privately held firms. J. Small Bus. Finance. 1(3):185-203.

 

Antoniou A, Guney Y, Paudyal K (2008). The determinants of capital structure: Capital market-oriented versus bank-oriented institutions. J. Financial. and Quant. Anal. 43(1):59-92.
Crossref

 

Arellano M, Bond S (1988). Dynamic panel data estimation using DPD—A guide for users. Working Paper 88r15, Institute for Fiscal Studies.

 

Arvanitis SH, Tzigkounaki IS, Stamatopoulos TV, Thalassinos EI (2012). Dynamic approach of capital structure of European shipping companies. Int. J. Econ. Sci. Appl. Res. 5(3):33-63.

 

Baker M, Wurgler J (2002). Market timing and capital structure. J. Finance. 57(1):1-32.
Crossref

 

Bancel F, Mittoo U (2004). Cross-country determinants of capital structure choice: A survey of European firms. J. Financial Manag. pp. 1-55.

 

Barton SL, Hill CH, Sundaram S (1989). An empirical test of stakeholder theory predictions of capital structure. Financial Manag. 18:36-44.
Crossref

 

Bevan AA, Danbolt J (2002). Capital structure and its determinants in the UK – A decompositional analysis. Appl. Financ. Econ. 12(3):159-170.
Crossref

 

Billett MT, Flannery M, Garfinkel J (2001). The long run performance of firms following loan announcements. Working paper, University of Iowa.

 

Bolton P, Chen H, Wang N (2013). Market timing, investment, and risk management. J. Financial Econ. 109(1):40-62.
Crossref

 

Booth L, Aivazian V, Demirguc-Kunt A, Maksimovic V (2001). Capital structures in developing countries. J. Finance. 56(1):87-130.
Crossref

 

Bradley M, Jarrell GA (1984). On the existence of an optimal capital structure: Theory and evidence. J. Finance. 39(3):857-878.
Crossref

 

Chang X, Dasgupta S (2009). Target behavior and financing: How conclusive is the evidence? J. Finance 64(4):1767-1796.
Crossref

 

Chiarella A, Pham TM, Sim AB, Tan MML (1991). Determinants of corporate capital structure: Australian evidence. In Pacific Basin Capital Markets Research, Volume III. Amsterdam: North-Holland.

 

Chirinko R, Singha S, Anuja R (2000). Testing static tradeoff against pecking-order models of capital structure: A critical comment. J. Financial Econ. 58:17-25.
Crossref

 

Colombo E (2001). Determinants of corporate capital structure: Evidence from Hungarian firms. Appl. Econ. 33(13):1689-1701.
Crossref

 

Dang VA (2013). Testing capital structure theories using error correction models: Evidence from the UK, France and Germany. Appl. Econ. 45(2):171-190.
Crossref

 

Daskalakis N, Psillaki M (2008). Do country or firm factors explain capital structure? Evidence from SMEs in France and Greece. Appl. Financial Econ. 18:87-97.
Crossref

 

De Angelo H, Masulis RW (1980). Optimal capital structure under corporate and personal taxation. J. Financial Econ. 8(1):3-29.
Crossref

 

De Jong A, Dutordoir M, Verwijmeren P (2011). Why do convertible issuers simultaneously repurchase stock? An arbitrage-based explanation. J. Financial Econ. 100(1):113-129.
Crossref

 

De Jong A, Kabir R, Nguyen TT (2008). Capital structure around the world: The roles of firm- and country-specific determinants. J. Bank. Finance. 32(9):1954-1969.
Crossref

 

De Jong A, Verbeek M, Verwijmeren P (2010). The impact of financing surpluses and large financing deficits on tests of the pecking-order theory. Financial Manag. 39(2):733-756.
Crossref

 

Demirguc-Kunt A, Maksimovic V (1999). Stock market development and financing choices of firms. World Bank Econ. Rev. 10:341-369.
Crossref

 

Drobertz W, Fix R (2003). What are the determinants of the capital structure? Some evidence for Switzerland., WXYZ/Department of Finance, University of Basel. pp. 4103.

 

Dutta S, Saadi S, Zhu PC (2013). Does payment method matter in cross-border acquisitions? Int. Rev. Econ. Finance. 25:91-107.
Crossref

 

Fama EF, French KR (2002). Testing the trade-off and pecking-order predictions about dividends and debt. Rev. Financial. Stud. 15(1):1-33.
Crossref

 

Flannery MJ, Rangan KP (2006). Partial adjustment toward target capital structures. Journal of Financial Economics 79:469-506.
Crossref

 

Frąckowiak W (2006). The strategy of shaping fixed capital as a tool of total corporate value growth, Akademia Ekonomiczna w Poznaniu, Research Grant.

 

Frank MZ, Goyal VK (2003). Testing the pecking-order theory of capital structure. J. Financial Econ. 67(2):217-248.
Crossref

 

Frank MZ, Goyal VK (2004). The effect of market conditions on capital structure adjustment. Finance Res. Lett. 1(1):47-55.
Crossref

 

Frank MZ, Goyal VK (2008). Profits and capital structure. AFA 2009 San Francisco Meetings Paper.

 

Gaud P, Jani E, Hoesli M, Bender A (2005). The capital structure of Swiss companies: An empirical analysis using dynamic panel data. Euro. Financial Manag. 11:51-69.
Crossref

 

Graham JR, Harvey CR (2001). The theory and practice of corporate finance: Evidence from the field. J. Financial Econ. 60(2-3):187-243.
Crossref

 

Greene W (1997). Frontier production functions. In Handbook of Applied Econometrics, Volume II: Microeconometrics, edited by MH Pesaran and P Schmidt. Oxford: Blackwell Publishers.

 

Greene BP, Choi LH (1998). Assessing the risk of management fraud through neural network technology. Auditing: J. Pract. Theory 16(1):14-28.

 

Hall GC, Hutchinson PJ, Michaelas N (2000). Industry effects on the determinants on the unquoted SMEs' capital structure. Int. J. Econ. Bus. 7(3):297-312.
Crossref

 

Hall GC, Hutchinson PJ, Michaelas N (2004). Determinants of the capital structure of European SMEs. J. Bus. Finance. Econ. 31(5&6):711-728.

 

Hall G, Hutchinson P, Michaelas N (2006). East and west: Differences in SME capital structure between former Soviet-bloc and non-Soviet-bloc European countries. 

View

 

Harris M, Raviv A (1991). The theory of capital structure. J. Finance. 46(1):297-356.
Crossref

 

Hausman JA (1978). Specification tests in econometrics. Econometrica. 46:1251-1271.
Crossref

 

Hertzel M, Lemmon M, Linck JS, Rees L (2002). Long-run performance following private placements of equity. J. Finance. 57(6):2595-2617.
Crossref

 

Holtz-Eakin D, Newey W, Rosen HS (1988). Estimating vector autoregressions with panel data. Econometrica. 56:1371-1395.
Crossref

 

Hovakimian A, Opler T, Titman S (2001). The debt-equity choice. J. Financial. Quant. Anal. 36(1):1-24.
Crossref

 

Hovakimian A (2006). Are observed capital structure determined by equity market timing? J. Financial. Quant. Anal. 41:221-243.
Crossref

 

Huang R, Ritter JR (2005). Testing the market timing theory of capital structure. J. Financial. Quant. Anal. 1:221-246.

 

Huang G, Song FM (2006). The determinants of capital structure: Evidence from China. China Econ. Rev. 17(1):14-36.
Crossref

 

Hutchinson W, Hunter RL (1995). Determinants of capital structure in the retailing sector in the UK. Distrib. Consum. Res. 5(1):63–78.
Crossref

 

Ikenberry D, Lakonishok J, Vermaelen T (1995). Market underreaction to open market share repurchases. J. Financial Econ. 39:181-208.
Crossref

 

Iliev P, Welch I (2010). Reconciling estimates of the speed of adjustment of leverage ratios. Working paper, Pennsylvania State University.
Crossref

 

Iqbal N, Ahmad N, Basher NA, Nadeem M (2012). Impact of corporate social responsibility on financial performance of corporations: Evidence from Pakistan. Int. J. Learn. Dev. 2(6):107-118.
Crossref

 

Jensen MC (1986). Agency costs of free cash flow, corporate finance and takeovers. American Economic Review 76:323-329.

 

Jensen MC, Meckling WH (1976). Theory of the firm: Managerial behavior agency cost and ownership structure. J. Financial Econ. 3:305-360.
Crossref

 

Kayhan A, Titman S (2007). Firms' histories and their capital structures. J. Financial Econ. 83(1):1-32.
Crossref

 

Kedzior M (2012). Capital structure in EU selected countries – Micro and macro determinants. Argument. Oeconomica. 1(28):69-117.

 

Kester CW (1986). Capital and ownership structure: A comparison of United States and Japanese manufacturing corporations. Financ. Manag. 15:5-16.
Crossref

 

Kim WS, Sorensen EH (1986). Evidence on the impact of the agency costs of debt on corporate debt policy. J. Financial. Quant. Anal. 21(2):131-144.
Crossref

 

Koksal B, Orman C (2015). Determinants of capital structure: Evidence from a major developing economy. Small Bus. Econ. 44(2):255-282.
Crossref

 

Korajczyk RA, Levy A (2003). Capital structure choice: Macroeconomic conditions and financial constraints. J. Financial Econ. 68(1):75-109.
Crossref

 

Kumar N, Singh JP (2012). Outside directors, corporate governance and firm performance: Empirical evidence from India. Asian. J. Finance. Account. 4(2):39-55.

 

Lemmon ML, Zender JF (2001). Looking under the lamppost: An empirical examination of the determinants of capital structure. Working paper, University of Utah and University of Arizona.

 

Lemmon ML, Zender JF (2010). Debt capacity and tests of capital structure theories. J. Financial. Quant. Anal. 45(5):1161-1187.
Crossref

 

Lewellen WG, Badrinath SG (1997). On the measurement of Tobin's q. J. Financial. Econ. 44:77-122.
Crossref

 

Long MS, Malitz IB (1985). Investment patterns and financial leverage. In Corporate Capital Structures in the United States, edited by BM Friedman. University of Chicago Press.

 

Loughran T, Ritter JR (1995). The new issues puzzle. J. Finance 50(1):23-51.
Crossref

 

Loughran T, Vijh AM (1997). Do long-term shareholders benefit from corporate acquisitions? J. Finance 52(5):1765-1790.
Crossref

 

Mahajan A, Tartaroglu S (2008). Equity market timing and capital structure: International evidence. J. Bank. Finance 32(5):754-766.
Crossref

 

Mahakud J (2006). Testing the pecking order theory of capital structure: Evidence from Indian corporate sector. ICFAI J. Appl. Finance. 12(11):16-26.

 

Marsh P (1982). The choice between equity and debt: An empirical study. J. Finance. 37(1):121-144.
Crossref

 

McConnell JJ, Pettit RR (1984). Application of the modern theory of finance to small business firms. In Small Business Finance: Problems in Financing of Small Businesses, edited by Horvitz and Petit, Part A. Greenwich, Conn: JAI Press P 42.

 

Mehran H (1992). Executive incentive plans, corporate control, and capital structure. J. Financial. Quant. Anal. 27(4):539-560.
Crossref

 

Michaelas N, Chrittenden F, Poutziouris P (1999). Financial policy and capital structure choice in U.K. SMEs: Empirical evidence from company panel data. Small Bus. Econ. 12(2):113-130.
Crossref

 

Miller MH (1977). Debt and taxes. J. Finance. 32(2):261-275.
Crossref

 

Miguel AD, Pindado J (2001). Determinants of capital structure: New evidence from Spanish panel data. J. Corp. Finance. 7:77-99.
Crossref

 

Modigliani F, Miller MH (1958). The cost of capital, corporate finance and the theory of investment. Am. Econ. Rev. 48(3):261-297.

 

Modigliani F, Miller MH (1963). Corporate income taxes and the cost of capital: A correction. Am. Econ. Rev. 53(3):433-443.

 

Mohamed A, Seelanatha L (2014). The global financial crisis (GFC), equity market liquidity and capital structure. J. Appl. Res. Account. Finance. 9(1).

 

Mokhova N, Zinecker M (2013). Capital structure and the country default risk: The evidence from Visegrad group. Macrotheme. Rev. 2(1):155-180.

 

Myers SC (1977). Determinants of corporate borrowing. J. Financial. Econ. 5(2):147-175.
Crossref

 

Myers SC (1984). The capital structure puzzle. J. Finance. 39(3):575-592.
Crossref

 

Myers SC (2001). Capital structure. J. Econ. Perspect. 15(2):81-102.
Crossref

 

Myers SC, Majluf NS (1984). Corporate financing and investment decisions when firms have information that investors do not have. J. Financial. Econ. 13(2):187-221.
Crossref

 

Ozkan A (2001). Determinants of capital structure and adjustment to long run target: Evidence from UK company panel data. J. Bus. Finance. Account. 28(1-2):175-198.
Crossref

 

Panno A (2003). An empirical investigation on the determinants of capital structure: The UK and Italian experience. Working paper, Universita Cattolica del Sacro Cuore.
Crossref

 

Pattani A, Vera G (2011). Going public: UK's company use of capital markets. Q. Bull. P 4.

 

Prowse SD (1990). Institutional investment patterns and corporate financial behaviour in the United States and Japan. J. Financial. Econ. 27(1):43-66.
Crossref

 

Rajan RG, Zingales L (1995). What do we know about capital structure? Some evidence from international data. J. Finance. 1:1421-1461.
Crossref

 

Serrasqueiro Z, Nunes PM (2009). Determinants of capital structure: Comparison of empirical evidence from the use of different estimators. Int. J. Appl. Econ. 5(1):14-29.

 

Shah A, Khan S (2007). Determinants of capital structure: Evidence from Pakistani panel data. Int. Rev. Bus. Res. 3(4):265-282.

 

Shyam-Sunder L, Myers D (1999). Estimation of a debt function: Evidence from French and German firm panel data. In Corporate Finance in Germany and France, edited by A Sauve and M Scheuer. Deutsche Bundesbank and Banque de France.

 

Sinan A (2010). How do firm characteristics affect capital structure? Some UK evidence. Working paper.

 

Singh RA (1995). Response of financial markets to announcements of the Australian current account balance. Account. Finance. 35(2):155-174.
Crossref

 

Sogorb-Mira F (2005). How SME uniqueness affects capital structure: Evidence from a 1994-1998 Spanish data panel. Small. Bus. Econ. 25(5):447-457.
Crossref

 

Spiess DK, Affleck-Graves J (1995). The long-run performance following seasoned equity offerings. J. Financial Econ. 38:269-296.
Crossref

 

Sun J, Ding L, Guo JM, Li Y (2015). Ownership, capital structure and financing decision: Evidence from the UK. The British Accounting Review. Forthcoming.
Crossref

 

Titman S, Wessels R (1988). The determinants of capital structure choice. J. Finance. 43:1-19.
Crossref

 

Toy N, Stonehill A, Remmers L, Wright R, Beekhuisen T (1974). A comparative international study of growth, profitability, and risk as determinants of corporate debt ratios in the manufacturing sector. J. Financial. Quant. Anal. 9(5):875-886.
Crossref

 

Voulgaris F, Asteriou D, Agiomirgianakis G (2002). Capital structure, asset utilization, profitability and growth in the Greek manufacturing sector. Appl. Econ. 34(11):1379-1388.
Crossref

 

Voulgaris F, Asteriou D, Agiomirgianakis G (2004). Size and determinants of capital structure in the Greek manufacturing sector. Int. Rev. Appl. Econ. 18(2):247-262.
Crossref

 

Wald JK (1999). How firm characteristics affect capital structure: An international comparison. J. Financial Res. 22(2):161-187.
Crossref

 

Weill L (2002). Determinants of leverage and access to credit: Evidence on Western and Eastern Europe countries. Working paper.

 

Welch I (2004). Capital struct

 


APA Vortelinosa, D., Gkillas, K., & Alexopoulosc, G. (2016). Structure theories: Panel data evidence from the United Kingdom. Journal of Accounting and Taxation, 8(7), 81-100.
Chicago Dimitrios Vortelinosa, Konstantinos Gkillas and Georgios Alexopoulosc. "Structure theories: Panel data evidence from the United Kingdom." Journal of Accounting and Taxation 8, no. 7 (2016): 81-100.
MLA Dimitrios Vortelinosa, Konstantinos Gkillas and Georgios Alexopoulosc. "Structure theories: Panel data evidence from the United Kingdom." Journal of Accounting and Taxation 8.7 (2016): 81-100.
   
DOI 10.5897/JAT2016.0228
URL http://academicjournals.org/journal/JAT/article-abstract/47BCE9561789

Subscription Form