The firm-specific determinants of capital structure - An empirical analysis of firms before and during the Euro Crisis

This paper intends to address the effects of firm-specific characteristics on the formation of capital structure amongst a balanced panel sample of 559 firms in six European countries before and during the period of 1999-2015. We find that growth, profitability, tax shields and the effects of the Euro Crisis are significantly negatively related to leverage plus debt-to-equity ratio and are significantly positively correlated with net equity. Additionally, we detect that size, asset tangibility, non-debt tax shields and earnings volatility are significantly positively correlated with leverage along with debt-to-equity ratio and have a significantly negatively relation with net equity. Our model tests the effectivity of trade-off, pecking order and agency cost theories of capital structure. Besides, we divide the full sample into three subsamples illustrating different industries of retail trade and services, manufacturing and construction plus transportation and tourism. We find that the transportation and tourism industry is more negatively impacted by the Euro Crisis than the other two industries.