Determinant factors of capital structure for the largest companies active in Brazil

Abstract

Capital structure is still a still controversial issue in finance theory. Since the discussion between traditional theory, which asserts the existence of an optimal capital structure that maximizes the firms value, and Modigliani and Millers theory (1958), which considers that the value of a firm is unaffected by how it is financed, many empirical studies have been carried out to identify the factors that explain how a firm finances itself. This research analyses the capital structure of the largest firms in Brazil and investigates the relationship between the leverage ratio and the factors indicated by theory as determinant. The study is based on accounting data extracted from the financial statements of publicly traded and private companies. Multiple linear regression was applied as a statistical technique. The results indicate that risk, firm size, fixed assets and growth are determinants of the firms capital structure, while profitability is not a determinant factor. The results also show that the firms leverage is unaffected by whether a firm is publicly-traded or private.