Which factors are reliably important for predicting leverage?

Abstract

This thesis examines various determinants that affect capital structure in the Norwegian market from 1994-2019. Our study presents some important theoretical framework and previous empirical evidence in order to highlight the justification of capital structure but did not successfully explain all aspects of capital structure. By applying econometric methods for our data analysis, we were able to construct multiple regression models regressed on several leverage measures which later was used to answer our hypothesis. Our first model used BIC - selection criterion to choose our core factors, which later was used for core model (5). We found evidence for significant determinants for the nature of assets, growth, industry leverage and risk. Therefore rejected the null hypothesis that there is no correlation between the determinants and leverage. When considering model (6), we examine if the determinants still will be significant when grouping the firms in different industries. This section serves as our contribution to existing literature of capital structure in the Norwegian market. Our result is mostly consistent with trade-off theory when relating literature to our implications and predicts many of the same relations we were studying. In general terms, we can conclude that none of the theories could fully explain our results, like many earlier studies. This study gave us factors that were reliable important for leverage.