Determinants of Capital Structure Across Publicly Listed Nordic Companies

Abstract

This thesis investigates determinants of capital structure for 238 publicly listed Nordic companies with the purpose of studying the effect and importance of firm specific key figures and industry classifications on capital structure. As a result hereof, this thesis studies the effect of various firm characteristics on capital structure within different industries. Through examination of existing theories such as Modigliani & Miller’s Propositions, trade-off theory and pecking order theory as well as reviews of earlier studies, three hypotheses and 12 sub-hypotheses are developed.
The analysis finds that firm specific key figures in general have statistically significant impact on capital structure measured as Net Debt Enterprise Value. However, due to differences in industry characteristics the effect and importance of the key figures measuring asset structure, asset specificity, revenue per employee, growth, profitability, risk, age, size, liquidity, payout policy and ownership structure on a company’s capital structure are found to be dependent on the industry in which the company operates.
Based on the findings from the analysis on the effect of the key figures on capital structure across the industries, it is examined whether the firm specific key figures or the industry classifications on a stand-alone basis are most suited to explain the variations in the capital structure across the listed Nordic companies in the pooled data set. The results indicate that both firm specific key figures and industry classifications separately have statistically significant impact on capital structure but on a stand-alone basis the firm specific key figures have a higher explanatory power than industry clas- sifications. However, it is found that since the effect and importance of the key figures varies across the industries, the best model is achieved when the key figures, where the effect varies the most, are included as interaction terms with industry variables as the varying effect of the key figures hereby are taken into account.
Thus, this thesis indicates that when publicly listed Nordic companies determine their target capital structure, both firm specific key figures as well as industry classification should be considered.