The Capital Structure

Prior studies on the capital structure have identified several capital structure determinants. However, the models that try to explain leverage often have only little explanatory power. In this study an alternative, more practically related manner of defining leverage is presented in order to obtain better models to explain differences in the capital structures of firms. I find that when leverage is defined by a debt-to-EBITDA measure instead of an often used debt-to-assets ratio, better capital structure models can be obtained. Furthermore, reexamination of previously identified capital structure determinants finds business risk, profitability, collateral value of assets, the non-debt tax shield and asset intensity to be related to long-term debt. Profitability, risk, collateral value of assets, the non-debt tax shield and growth are found to affect the amount of short-term debt in the capital structure.