The Determinants of Capital Structure: A Time-Series Cross-Sectional Analysis

This study uses time-series cross-sectional analysis to measure the response of debt policy changes in specific variables through time as well as across firms in Taiwan. In addition, the variables are perforated in first difference form to capture the dynamic nature of firm's financing behavior. The results show that there is an inverse relationship between CEO's ownership and the corporate debt ratio. In addition, the traditional firm variables demonstrate the importance in corporate debt policy making. Depreciation tax shield is significantly negatively related to the debt ratio. The higher the collateral value of assets, the more the firm is able to borrow. The relationship between profitability and financial leverage is negative and significant. Shareholders tend to invest more for firms with high growth opportunity, so debt ratio is lower. A negative causal relation from dividends to debt policy is also found.