Towards a Consolidation of the Prominent Firm-Related Capital Structure Determinants

Abstract

The heterogeneous empirical evidence in the vast literature on capital structure determinants is puzzling to scholars and practitioners. Various leverage measurements, in conjunction with the inconclusiveness of the significant firm-related capital structure determinants, complicate comparability. Practitioners also find it challenging to determine optimal financing strategies with real precision. This paper provides an integrative position that consolidates firm-related capital structure determinants with their respective measurements and suggests a preferred proxy for capital structure. A qualitative design has been applied, which is rarely done in the context of capital structure. This paper also offers a methodological contribution by utilising a combination of documentary analysis with PRISMA and forward-looking citation analysis, named the adapted documentary analysis. Capital structure determinant studies were targeted from inception until 2023. The synthesis of the results from 335 articles identified the six most prominent capital structure determinants: profitability, tangibility, growth proxied by the market-to-book value of equity (MTB), firm size, non-debt tax shield (NDTS), and business risk. Capital structure book value measurements seem more reliable than market-based measures. Profitability, MTB, and tangibility are the key firm-related determinants informing practitioners’ financing decisions. A consolidated list of the most prominent capital structure determinants, with their associated measurements, and a reliable proxy for capital structure are novel contributions that enable comparability in capital structure research across companies, industries, and countries. It creates a consolidated, integrative platform that adds to the academic debate and assists practitioners in their capital structure decision-making.