The determinants of capital structure: Evidence from the Greek firms for the period 1997-2004

Abstract

This paper examines the determinants of capital structure for sixty Greek companies from 1997-2004. The assumption that is tested in this paper is that the debt ratio at time t (debt divided with total assets) is affected by the size (logarithm of sales) at time t, the profitability (earnings before taxes divided with total assets) at time t, the asset structure (the portion of fixed assets on total assets) at time t and the growth opportunities at time t (percentage change in net income’s level at time t and t-1). The results of this analysis using panel data econometric methods show that size has a positive relationship with leverage, whereas profitability and asset structure a negative. The impact of growth opportunities on leverage was found insignificant, so we cannot rely on this result. Therefore, the sample of these companies does not strongly support any of the examining capital structure theories (Trade-Off theory or Pecking Order theory).