The Empirical Study of the Impact of Firm- and Country-level Factors on Debt Financing Decisions of ICT Firms

The capital structure has been extensively analysed in the empirical literature. Despite of the great contribution of the technological industry to the global economy, little research has been conducted regarding corporate finance of ICT firms. Moreover, the previous literature barely considers the effect of macroeconomic variables on financial decisions, focusing much more on internal determinants, such as cash flow, firm's size or growth opportunities. The objective of this work is to reduce this gap by disentangling the reasons behind the financial decisions of technological firms. The sample included 1,510 public ICT firms from 23 countries over the period 2004 - 2019 (17,342 observations). The variables used in this study are obtained from S&P Capital IQ, World Development Indicators, Main Science and Technology Indicators from OECD, and FMI dataset. The two-step system generalized method of moments (GMM) was used as methodology. Consistent with the extant literature, more profitable and liquid ICT firms and those with an increased non-debt tax shields are less leveraged. However, the companies which present higher risk, measured as volatility of EBIT, increase their use of debt financing. Contrary to the findings of many other studies, the analysis of a firm's size and tangible assets shows non-conclusive results. Regarding macroeconomic determinants, only economic growth and foreign direct investment inflows were found to generate a positive effect on financial decisions of ICT firms. The findings of this work can be used to design and develop policies, measures, and facilitate mechanisms for optimal management of the financing decisions of ICT firms.