Employing the panel data methodology, we examine the capital structure determinants of 83 property companies quoted in the UK. The empirical test reveals how the debt-equity structure of the companies is influenced by the various firm-specific attributes and macro-economic factors. In particular, the evidence shows that asset structure, business orientation, and the level of involvement in property development are significant determinants of the corporate debt policy of property companies. Financial distress consideration also has a significant influence. In addition, the empirical evidence shows that corporate property managers take into consideration the prevailing market sentiment and borrowing costs when making the debt-equity choice. Corporate performance and tax burden, however, do not appear to have any significant effect on the capital structure decision of property companies.
Abstract—testing for inconsistencies for UK companies
We analyse the determinants of the capital structure of 1,054 UK companies from 1991 to 1997, and the extent to which the influence of these determinants are affected by time-invariant firm-specific heterogeneity. Comparing the results of pooled OLS and fixed effects panel estimation, we find significant differences in the results. While our OLS results are generally consistent with prior literature, the results of our fixed effects panel estimation contradict many of the traditional theories of the determinants of corporate financial structure. This suggests that results of traditional studies may be biased owing to a failure to control for firm-specific, time-invariant heterogeneity. The results of our fixed effects panel estimation find larger companies to have higher levels of both long-term and short-term debt than do smaller firms; profitability to be negatively correlated with the level of gearing, although profitable firms tend to have more... [continues]
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