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An International Comparison of Capital Structure and Debt Maturity Choices

Published online by Cambridge University Press:  01 December 2011

Joseph P. H. Fan
Affiliation:
Faculty of Business Administration, Chinese University of Hong Kong, Shatin, NT, Hong Kong. pjfan@cuhk.edu.hk
Sheridan Titman
Affiliation:
McCombs School of Business, University of Texas at Austin, 1 University Station, Austin, TX 78712. titman@mail.utexas.edu
Garry Twite
Affiliation:
School of Finance and Applied Statistics, Australian National University, Canberra, ACT 0200, Australia. garry.twite@anu.edu.au
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Abstract

This study examines how the institutional environment influences capital structure and debt maturity choices of firms in 39 developed and developing countries. We find that a country’s legal and tax system, corruption, and the preferences of capital suppliers explain a significant portion of the variation in leverage and debt maturity ratios. Specifically, firms in more corrupt countries and those with weaker laws tend to use more debt, especially short-term debt; explicit bankruptcy codes and deposit insurance are associated with higher leverage and more long-term debt. More debt is used in countries where there is a greater tax gain from leverage.

Type
Research Articles
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2012

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