Capital Structure Determinants within the Automotive Industry

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: This thesis aims to extend the capital structure literature and identify the firm specific determinants of leverage within the automotive industry, filling a gap in the academic literature, and providing a base for future research. Panel data comprised of 29 global automotive companies over a 10-year period, 2008-2017, is used to run OLS regressions on three classifications of capital structure: total debt, long-term debt, and short-term debt. Both the Pecking Order Theory and the Trade-off Theory are employed to offer predictions and justifications for the results detailed in this study. The empirical results identified in this thesis indicate that growth opportunities, the non-debt tax shield, and profitability produce a negative effect to total leverage while firm size and asset tangibility have a positive correlation. These results were predominantly supported by Trade-off Theory and its implications regarding capital structure choice.

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