Determinants of Capital Structure: Empirical evidence from listed firms in Norway

Abstract

In this study I have researched on capital structure of Norwegian firms listed on annual statistic over large domestic and foreign firms. This study aims to investigate which variables determine the capital structure of these firms, by using a long list of both firm-specific and macroeconomic variables. Datastream was the source of data collection. A total of 59 firms and1503 firms were included in this study. By using fixed effects model, the result indicates that there are differences in the determinants of long-term and short-term debt. Non-debt tax shield is the most explanatory variable for short-term debt, while tangibility is the firm characteristic that mostly affects the long-term debt. The most surprisingly result was that the profitability and size were not significant, which is not in accordance with previous research on capital structure. Furthermore, none of the macroeconomics factors seems to affect capital structure of Norwegian firms. Both types of debt increase with tangibility for domestic firms, on the other hand none observed factors affect short-term and long-term debt for foreign firms. The results obtained for short-term debt are inconclusive and support both theories and do not point out superiority of any theories. On the other hand long-term debt can be explained by trade-off theory. This indicates that capital structure of large Norwegians listed firms can be explained by the trade-off between the costs and benefits of debt.