Were Modern Capital Structure Theories Valid Before World War I?

Abstract

This study investigates whether capital structure theory can explain debt ratios in an historical environment which was characterized by poor investor protection, booming stock markets and strong banks, and in which corporate income tax did not affect capital structure. Our results, based on a unique, hand-collected sample of 556 firmyear observations for 129 listed companies in pre-World War I Belgium, are remarkably similar to findings for present-day samples. Leverage was positively related to asset tangibility, firm size and firm age, and it was negatively related to profitability and prior stock returns. Bank relationships were associated with lower leverage.

Capital Structure Variables of Pecking Order Theory Perspective in Indonesia Stock Exchange

“…The amount of the company's total assets can also be used to pay off the total debt (Channar et al, 2015). Company size and capital structure have a negative effect since large companies could finance through the issuance of shares rather than debt financing, so that large companies will use less debt in the capital structure (Deloof and Overfelt, 2008). The larger the size of the company, the lower the capital structure of the company.…”