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Capital Structures in German Small and Mid Caps: Does Trade-Off or Pecking Order Theory Explain Current Reality Better?
Commerzbank AG, Frankfurt am Main, Germany
International School of Management, Frankfurt am Main, Germany
Hochschule Neu-Ulm, Neu-Ulm, Germany
- 1 Commerzbank AG, Frankfurt am Main, Germany
- 2 International School of Management, Frankfurt am Main, Germany
- 3 Hochschule Neu-Ulm, Neu-Ulm, Germany
Journal of Financial Risk Management·Volume 08 (2019)·Pages 147–162·Published 30 August 2019·DOI10.4236/jfrm.2019.83010
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Abstract
This paper analyzes the determinants of the capital structure of German companies. The data are based on the year-end values of 44 companies included in the SDAX for the 2017 financial year. The data are examined in a multiple regression analysis according to the ordinary least squares (OLS) method. The result basically shows a strong correlation for the market leverage ratio with the factors of company size and growth opportunities. Profitability plays only a subordinate role. No significant correlation with the capital structure of German companies in the SDAX has been found for the tangibility factor of the assets. Basically, the results of this work support trade-off theory more than pecking order theory and thus point to the existence of an optimal debt ratio.
KeywordsCapital StructureLeverage RatioTrade-Off TheoryPecking Order TheorySDAX
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