dc.description.abstract | The ultimate goal of all the firms in the market is to maximize the firm value and the wealth of
shareholders. The empirical data suggests that such goals can be achieved by an optimal combination of
debt and equity which may result in a low average weighted cost of capital to the firm. An appropriate
choice of capital structure based on firm, industry and country level explanatory factors could influence
their path of capital growth.
So far, many empirical studies have been carried out to identify and explain the contributing factors to
influence the choice for a particular capital structure suitable to any individual firm or group of firms.
Ironically, such studies with particular reference to the firms operating in the capital market of Norway
are few and far between. Realising this vacuum, the current study is a humble effort to explore and
identify the most significant factors, both at firm and country level, which affect the choice of capital
structure of some of the largest domestic and foreign firms listed on Oslo Børs.
Quarterly data of largest 29 domestic and 34 foreign firms for the past five years (2011 to 2015) has been
collected from Thomson Reuter’s data stream for the purposes of analysis. To maintain uniformity,
financial firms including banks and insurance companies have been excluded from the sample. With view
to enhance the reliability of the tests, two separate models on the book value of leverage as dependent
variables (short term debt and long term debt) are tested over number of independent variables on three
different data sets (domestic , foreign firms and their combined data ). An attempt has been made to find
out if there is a difference between foreign and local firms in the choice of their respective capital
structures. Explanatory factors were derived from previous empirical studies on the same subject. Some
additional factors like exchange rate, liquidity and past profitability have been included that are not
studied previously on Norwegian data.
The results reveal that for long-term debt ratio (LTD/TA), non-debt tax shield, inflation and exchange rate
are the most significant determining factors for adopting a capital structure in both domestic and foreign
firms. While, inflation is particular to domestic firms only. The results also show that for short-term debt
ratio (STD/TA), non-debt tax shield again is a significant explanatory factor along with tangibility and
exchange rate at a lesser scale. Domestic firms prefer short-term debt but foreign firms prefer long-term
debt as a source of external financing. Support of trade-off theory for both short term and long term debt
in capital structure of listed firms in Norway is an obvious outcome of the results. | en_US |