Firm- and country-level determinants of corporate leverage: Some new international evidence

This research analyzes the determinants of capital structure across 37 countries. Institutional arrangements matter for capital structure decisions; however, firm-level covariates drive two-thirds of the variation in capital structure across countries, while the country-level covariates explain the remaining one-third. The observed relationships between the country-level determinants and leverage provide strong support to the predictions of both the trade-off and the pecking-order theories. Country-level determinants serve as substitute mechanisms for the firm-level, industry-level, and macroeconomic determinants by moderating their marginal impact on leverage. ► This research analyzes the determinants of capital structure across 37 countries. ► Firm-level covariates drive two-thirds of the international variation in capital structure. ► Country-level covariates explain the remaining one-third. ► The relations of leverage and its determinants are consistent with the capital structure theories. ► Country-level determinants moderate the impact of the firm-level determinants on leverage.