Determinants of Capital Structure and the Cost of Capital: A Time and Industry differentiated Study on Swedish Listed Firms

Abstract: This paper analyzes the impact of variables suggested by the trade-off theory and the pecking order theory, on publicly listed Swedish firms in a sample period of 8 years, ranging from 2003-2010. Also the relationship between leverage and weighted average cost of capital (WACC) is studied for the same set of firms and time periods. The model used is based on panel regression with fixed and random effects and the approach differentiates between time periods and industry sectors. Support is found for both theoretical frameworks, but the models display higher accuracy and consistency for the manufacturing / producing industry than for the service industry. The study also finds that impact and relevance of the theoretically implied variables differ across time samples and are likely impacted by the state of the economic environment.