The Determinants of Capital Structure -- A Comparison of Listed Large Capitalization Non-Financial Companies in the U.S.A. and Sweden

Sammanfattning: The aim of this study is to examine the determinants of capital structure via a cross-country comparison between the U.S.A. and Sweden. With the consideration of firm specific factors, the main focus is on researching country effect and macroeconomic impacts on firms’ financing policy. Including both country and macroeconomic factors in the research allows for having a new approach on the topic. The research is based on 45 non-financial Large Cap firms listed on OMX Stockholm in Sweden and 167 non-financial Large Cap firms listed in NYSE in the U.S.A. The analysis covers the annual observations over the 10-year period from 2004 to 2013. The empirical evidences of this research prove that there are significant differences in the determinants of three leverage measures (total debt ratio, long-term debt ratio and short-term debt ratio). Furthermore, the study reveals that country effect does exist when firms in different countries decide financing policy. The research also indicates that industry presents stronger explanatory power on leverage compared to the macroeconomic factors; while considering all the significant variables (at 5% significance level) in the regressions, industry effect is revealed to be more influential on capital structure. Last but not least, the study shows that Trade-off theory and Free Cash Flow theory provide more explanation than Pecking Order theory.