The necessity of financial service: Empirical analysis of firm's capital structure

Financial service aims at offering proper debt/equity ratio to the firms besides diverse financing approaches. Capital structure plays an important role in the firm's financial management because proper debt level will increase shareholders' wealth and restrict manager behavior. This paper empirically studies the determinants of firms' capital structure. The results indicate that in the aspect of firm characteristics, business risk, size, growth, profitability and intangible assets ratio are important factors. There are differences of debt level among sub-industries. In the aspect of macroeconomic characteristics, tax institution, ownership concentration, equity market had significant effects on the firms financing decision. Furthermore, it was found that there are some reasonless behaviors when firms make financing decisions. The implication of the results was the necessity of the financial service.