CAPITAL STRUCTURE

1.0 INTRODUCTION

The literature on determinants of capital structure is well known of the existence

of three theories that are trade off, pecking order and free cash flow (managerial agency

costs). Each theory presents a different explanation of corporate financing. The trade off

theory is concerned with the trade off between debt tax shields or tax saving, and

bankruptcy costs, according to which an optimal capital structure is assumed to exist. The

pecking order theory assumes hierarchal financing decisions where firms depend first on

internal sources of financing and, if these are less than the investment requirements, the

firm seeks external financing from debt as a second source, then equity as the last resort.

The free cash flow theory assumes that debt presents fixed obligations such as debt

interests and principals to pay, that have to be met by the firm. These obligations are

assumed to take over the firm's free cash flow (if exists), therefore prevents managers

from over consuming the firm's financial resources.

It was recognized that the three theories are "conditional" in a sense that each

works out under its own assumptions and propositions (Myers, 2001). That is, none of the

three theories can give a complete picture of the practice of capital structure. This means

that firms can pursue capital structure strategies that are conditional as well. That means

that when the business conditions change, the financing decisions and strategies may

change, moving from one theory to another. This is the main reason that the literature

does not include one theory or one explanation on the determinants of capital structure. In

fact, an interrelationship can be observed between and among the three theories of capital

structure.

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For example, the trade off theory assumes a higher use of debt as long as the debt

is associated with positive tax shields and less bankruptcy costs. This does not mean that

the firm can reach the maximum debt ratio if, under the assumptions of the pecking order

theory, the firm is profitable enough to replace debt with internal financing using the

accumulated retained earnings which is can be considered as a part of an equity

financing. According to the free cash flow theory, it is affected by the severity of the

agency costs associated with debt or equity financing. In fact, the agency theory presents

another explanation of debt financing. That is, as long as the agency problem arises from

the presence of information asymmetry, Ross (1977), Myers and Majluf (1984) and John

(1987) have shown that under asymmetric information, firms may prefer debt to equity

financing. Therefore, the interrelationships between and among the three theories of

capital structure call for further examination.

It was also found that studies on the determinants of capital structure include

selected determinants in a regression equation. This is what Fama and French (2002)

referred to as the two theories of capital structure that are trade off and pecking order

have share many common predictions about the determinants of leverage. In this

research, the study had used leverage (total debt to total asset) as dependent variable and

tangibility, size, profitability, growth, volatility and non debt tax shields as independent

variables. However, Myers (2001) had stated that each theory works out under its own

assumptions. Thus, for this study, the explanatory power and significance of each theory

that are represented by independent variables will show the extent of these variables can

explain the leverage.

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1.1 PROBLEM STATEMENT

Over the years numerous studies on capital structure theory have appeared.

Modigliani and Miller (1958) were the first who theorized the issue by illustrate that the

valuation of a firm will be independent from its financial structure under certain key

assumptions. Internal and external funds may be regarded as perfect substitutes in a world

where capital markets function perfectly, where there are no transaction or bankruptcy

costs and the firm cannot increase its value by changing its leverage.

However, based on the previous research made by Myers (2001), he stated that

each theory applied should be based on some certain circumstances. Due to that, the

theories are not designed to be general. They are conditional theories of capital structure.

Each emphasizes certain costs and benefits of alternative financing strategies. Because

the theories are not general, testing them on a broad, heterogeneous sample of firms can

be uninformative.

This study comprises of certain related questions to be known:

i) To what extent the three theories can give impact to the capital structure

decision on the firm’s leverage. Besides that, it also to examine which

factors is reliably important for predicting Malaysian firms.

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1.2 OBJECTIVE OF THE STUDY

The basic objective of any corporate finance study of capital structure is to

identify factors explaining the firm’s decision with respect to its financial leverage.

Starting with Miller and Modigliani (1958), the literature on capital structure has been

expanded by many theoretical and empirical contributions and due to that, much

emphasis has been placed on releasing the assumptions made by MM.

Thus, this study had followed another approach which is to examine each theory

independently. The argument here follows what is stated by Myers (2001) that each

theory works out under its own assumptions. This requires an examination of each theory

independently to avoid the highly likely overlap between results. Generally, the

explanatory power and significance of each theory represented by an independent

regression equation will show the extent to which the explanatory variables of each

theory explain variations in corporate leverage.

Therefore, the objective of this paper is to examine the extent to which capital

structure decisions are affected by the three common theories that are trade off, pecking

order and free cash flow. Besides that, it also to explore whether the main theories of firm

financing can explain the capital structure of these firms. The leverage ratio is used as a

proxy for firm’s capital structure. The type of industry especially, the firm specific

characteristics is used as a control variable that may have effects on changes of capital

structure.

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2.0 LITERATURE REVIEW

1) PROFITABILITY

One of the main theoretical controversies is the relationship between leverage and

profitability of the firm. Profitability is a measure of earning power of a firm. The earning

power of a firm is the basic concern of its shareholders. Based on the previous research in

the agency models of Jensen and Meckling (1976), Easterbrook (1984) and Jensen

(1986), higher leverage helps to control agency problem by forcing managers to pay out

more of the firm’s excess cash. So, the strong commitment to pay out a larger fraction of

their pre interest earnings to debt payments suggests a positive relationship between book

leverage and profitability. This result is also consistent with the signaling hypothesis by

Ross (1977), where higher levels of debt can be used by managers to signal an optimistic

future for the firm.

However, the sharp contrast results in the pecking order model, when higher earnings

should result in less book leverage. This is when firms prefer raising capital first from

retained earnings, second from debt and third from issuing new equity. This is due to the

cost associated with new equity issues in the presence of information asymmetries.

Accordingly, the study made by Fama and French (2000), the pecking order model

predicts a negative relationship between book leverage and profitability. Besides that,

Fama and French also arise an important question is whether these predictions for book

leverage carry over to market leverage. Due to that, this theory predicts that firms with a

lot of profits and few investments have little debt. Since the market value increases with

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profitability, the negative relationship between book leverage and profitability also holds

for market leverage.

Moreover, a study made by Rajan and Zingales (1995), under the same theory, reported

that they found a negative relationship between leverage and profitability. However,

another study made by Jensen, Solberg and Zorn (1992), had found a contrast result when

under the trade off theory it have a positive relationships.

Besides that, the study made by Wolfgang Drobetz and Roger Fix (2003) documented

that profitability is negatively correlated with leverage, both for book and market

leverage. Thus, result had reliably supports the predictions of the pecking order theory. In

addition, to the statistical significance, the economic significance of profitability on

leverage is also noteworthy. Due to that, this finding is consistent with the research made

by Rataporn Deesomsak et. al (2004). Moreover, based on the study made by Murray Z.

Frank and Vidhan K. Goyal (2004) had found that firms that have more profits tend to

have less leverage.

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2) GROWTH

The empirical evidence regarding the relationship between leverage and growth

opportunities is rather mixed. Based on the previous research made by Titman and

Wessels (1988) had found a negative relationship but Kester (1986) had a contrast result

when does not find any support for the predicted negative relationship between growth

opportunities and gearing.

Furthermore, based on the previous research made Rajan and Zingales (1995) also

uncovered evidence of negative correlations between market to book and gearing for all

G-7 countries. Thus, Rajan and Zingales had reported a positive relationship between

leverage and growth.

Moreover, the result is consistent with the theoretical predictions of Jensen and Mekling

(1976) based on agency theory and the work of Myers (1977), who argues that, due to

information asymmetric, companies with high gearing, would have a tendency to pass up

positive net present value investment opportunities (also known as growth options).

Myers therefore argues that companies with large amounts of investments opportunities

would tend to have low gearing ratios.

Besides that, another study made by Jensen’s (1986) under the free cash flow theory

which predicts that firms with more investment opportunities have less need for the

disciplining effect of debt payments to control free cash flows.

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In addition, based on the study by Fama and French (2000), had explained how the

predictions for book leverage carry over to market leverage. According to the trade off

theory, it predicts a negative relationship between leverage and investment opportunities.

Since the market value grows at least in proportion with investment outlays, the relation

between growth opportunities and market leverage is negative and also supported by

Rataporn Deesomsak et. al (2004).

According to Wolfgang Drobetz and Roger Fix (2003), they state that among all proxies

variables, they found the strongest and most reliable relationship between investment

opportunities and leverage. Specifically, companies with high market to book ratios have

significantly lower leverage than companies with low market to book ratio. Thus, this

result is consistent with both the trade off theory and the extended version of the pecking

order theory.

Moreover, from prior research made by Chingfu Chang et. al (2008), they found that

growth has a negative effect on leverage and this result is consistent with Booth et. al

(2001). This judgment is also consistent with Murray Z. Frank and Vidhan K. Goyal

(2004) in their research found that firms which have a high market to book ratio tend to

have low levels of leverage.

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3) SIZE

The effect of size on leverage is ambiguous. According to Warner (1977) and Ang, Chua

and McConnel (1982) indicate that bankruptcy costs are relatively higher for smaller

firms. This judgment is also supported by Titman and Wessels (1988) when they argue

that larger firms tend to be more diversified and fail less often.

On the other hands, under the trade off theory, it predicts an inverse relationship between

size and the probability of bankruptcy. Due to that, it showed a positive relationship

between size and leverage and this judgment is also supported by Rataporn Deesomsak

(2004). If diversification goes along with more stable cash flows, this prediction is also

consistent with the free cash flow theory that are studied by Jensen (1986) and

Easterbrook (1986). Thus, the result showed that size has a positive impact on the supply

of debt (leverage). However, under the pecking order theory of the capital structure, it

predicts a negative relationship between leverage and size, with larger firms exhibiting

increasing preference for equity relative to debt.

Furthermore, in the research made by Rajan and Zingales (1995), indicate that including

size in their cross sectional analysis, they found that the effect of size on equilibrium

leverage is more ambiguous. Thus, larger firms tend to be more diversified and because

of that, size may then be inversely related to the probability of bankruptcy.

However study made by Wolfgang Drobetz and Roger Fix (2003) had found a contrast

results with the Rajan and Zingales (1995), when size is positively related to leverage by

indicating that size is a proxy for a low probability of default. However, the estimated

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coefficients on size are generally not significant. Again this result supports the trade off

theory, suggesting that large firms exhibit lower probability of default while small firms

wary of debt. This judgment is also supported by Bouallegui (2004) when found that

large firms tend to use more debt than smaller firms. Consistent with this result, Murray

Z. Frank and Vidhan K. Goyal (2004) also indicate that larger firms tend to have high

leverage.

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4) TANGIBILITY

Tangibility is defined as the ratio of tangible (fixed) assets to total assets. Harris and

Raviv (1990) predicts that firm with higher liquidation value will have more debt. Thus,

firms with more tangible assets usually have a higher liquidation value. This judgment is

also supported by Bouallegui (2004) which showed that leverage is also closely related to

tangibility of assets.

On the other hand, based on the previous research by Titman and Wessels (1988), Rajan

and Zingales (1995) and Fama and French (2000) argue that the ratio of fixed to total

assets (tangibility) should be an important factor for leverage. The tangibility of assets

represents the effect of the collateral value of assets of the firm’s gearing level. As such,

firm’s with a higher proportion of tangible assets are more likely to be in a mature

industry thus less risky, which affords higher financial leverage.

Furthermore, based on the study by Galai Masulis (1976), Jensen and Meckling (1976)

and Myers (1977) argue stockholders of levered firms are prone to over invest, which

gives rise to the classical shareholder and bondholder conflict. However, if debt can be

secured against assets, the borrower is restricted to using debt funds for specific projects.

Creditors have an improved guarantee of repayment and the recovery rate is higher such

as assets retain more value in liquidation. Without collateralized assets, such as a

guarantee does not exist, for example the debt capacity should increase with the

proportion of tangible assets on the balance sheet. Hence, under the trade off theory, it

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predicts a positive relationship between measures of leverage and the proportion of

tangible asstes.

However study made by Grossman and Hart (1982) had found a contrast result with the

previous study when they are argue that the agency costs of managers consuming more

than the optimal level of perquisites is higher for firms with lower levels of assets that

can be used as a collateral. Managers of highly levered firms will be less able to consume

excessive perquisites, since bondholders more closely monitor such firms. The

monitoring costs of this agency relationship are higher for firms with less collateralizable

assets. Therefore, firms with less collateralizable assets might voluntarily choose higher

debt levels to limit consumption of perquisites. Thus, this agency model predicts a

negative relationship between tangibility of assets and leverage.

In addition, according to Wolfgang Drobetz and Roger Fix (2003) has mentioned that

tangibility is almost always positively correlated with leverage. The result showed that

regression coefficient on tangibility is significant in about half of all regression. This had

support the prediction of the trade off theory that the debt capacity increases with the

proportion of tangible assets on the balance sheet. This can be quantified by the size of

the changes in leverage ratios that are associated with changes in the ratio of fixed to total

assets. This finding is consistent with more recent research by Rataporn Deesomsak

(2004), where under agency theory the result showed a positive relationship between

tangibility of assets and leverage when anticipated.

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5) NON DEBT TAX SHIELD

Firms will exploit the tax deductability of interest to reduce their tax bill. Therefore, firms

with other tax shields, such as depreciation deductions, will have less need to exploit the

debt tax shield. According to Ross (1985) argues that if a firm in this position issues

excessive debt, it may become ‘tax exhausted’ in the sense that it is unable to use all its

potential tax shields. Thus, the incentive to use debt financing diminishes as non debt tax

shields increase. Accordingly, in the framework of the trade off theory, one hypothesizes

a negative relationship between leverage and non debt tax shields.

However, Scott and Moore (1977) had found a contrast result when argue that firms with

substantial non debt tax shield should also have considerable collateral assets which can

be used to secure debt. It has been argued above that secured debt is less risky than

unsecured debt. Therefore, from a theoretical point it showed a positive relationship

between leverage and non debt shield.

Furthermore, another study made by Shenoy and Koch (1996) had find a negative

relationship between leverage and non debt tax shield. Consistent with this result, the

judgment is also supported by Rataporn Deesomsak (2004) when they also found an

inversely related to leverage. In addition, study made by Bouallegui (2004) had also

stated that leverage is closely related to the ratio of non debt shield. However, Gardner

and Trcinka (1992) had got in contrast, when they found a positive one.

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Besides that, another study made by Wolfgang Drobetz and Roger Fix (2003) had

mentioned that the non debt tax shield are generally insignificant. Only in one regression

specification the estimated coefficient is significant but the sign is opposite to what the

trade off theory suggests means the result showed a positive relationship.

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6.0 VOLATILITY

Leverage increases the volatility of the net profit. Higher volatility of earnings increases

the probability of financial distress, since firms may not be able to fulfill their debt

servicing commitments. Thus, firm’s debt capacity decreases with increases in earnings

volatility leading to an expected inverse relation with leverage (Rataporn Deesomsak,

2004). On the research by Myers (1977), the importance of the type underinvestment

problem increases with the volatility of the firm’s cash flow.

Besides that, based on the study by DeAngelo and Masulis (1980), the two issues here

will be argue that are, for firms which have variability in their earnings, investors will

have little ability to accurately forecast future earnings based on publicly available

information. The market will see the firm as a ‘lemon’ and demand a premium to provide

debt. This drives up the cost of debt. The other one is, to lower the chance of issuing

new risky equity or being unable to realize profitable investments when cash flows are

low, firms with more volatile cash flows tend to keep low leverage. Due to that,

according to the pecking order model, it predicts a negative relationship between leverage

and the volatility of the firm’s cash flow.

Besides that, the trade off model allows the same prediction, but the reasoning is slightly

different. More volatile cash flows increase the probability of default, implying that a

negative relationship between leverage and volatility of cash flows.

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However, in contrast, firms with stable cash flows should suffer from overinvestment

problems. Based on the research by Easterbrook and Jensen (1986), these firms

supposedly have more leverage, which further strengthens the notion of a negative

relationship between leverage and volatility.

Furthermore, based on the study by Wolfgang Drobetz and Roger Fix (2003), had found

in their research that the relationships between leverage and volatility is negative. This

result also support both the trade off theory (more volatile cash flows increase the

probability of default) and the pecking order theory (issuing equity is more costly for

firms with volatile cash flows).

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3.0 RESEARCH METHODOLOGY

3.1 THEORETICAL FRAMEWORK

Theoretical framework is the network on how these variables are associated with each

other. It consists of dependent and independent variables that are believed to have

relationships with the research topic. The dependent variable is the leverage, while the

independent variables are profitability, growth, size, tangibility, non debt tax shield and

volatility.

The dependent variable can be defined as the phenomenon or characteristics

hypothesized to be the outcome, effect, consequent or output of some input variables. Its

occurrence depends on some other variables, which usually has come before the

dependent variables. The purpose of this variable is to identify the output or presumed

effect of one or more independent variables.

Independent variables can be defined as the characteristics hypothesized to be the input

previous variable. It is assumed to an effect the dependent variable and is manipulated,

measured or selected in order to measure the outcome of dependent variable.

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Profitability

Growth

Size

Leverage

Tangibility

Non Debt
Tax Shields

Volatility

INDEPENDENT VARIABLES DEPENDENT VARIABLE

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3.2 HYPOTHESES

Hypothesis 1

Trade Off Theory

H0: There is a negative relationship between profitability and leverage.

H1: There is a positive relationship between profitability and leverage.

Pecking Order Theory

H0: There is a positive relationship between profitability and leverage.

H1: There is a negative relationship between profitability and leverage.

Hypothesis 2

Trade Off Theory

H0: There is a positive relationship between growth and leverage.

H1: There is a negative relationship between growth and leverage.

Pecking Order Theory

H0: There is a negative relationship between growth and leverage.

H1: There is a positive relationship between growth and leverage.

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Agency Cost Theory

H0: There is a negative relationship between growth and leverage.

H1: There is a positive relationship between growth and leverage

Hypothesis 3

Trade Off Theory

H0: There is a negative relationship between size and leverage.

H1: There is a positive relationship between size and leverage.

Pecking Order Theory

H0: There is a positive relationship between size and leverage.

H1: There is a negative relationship between size and leverage

Agency Cost Theory

H0: There is a negative relationship between size and leverage.

H1: There is a positive relationship between size and leverage

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Hypothesis 4

Trade Off Theory

H0: There is a negative relationship between tangibility and leverage.

H1: There is a positive relationship between tangibility and leverage.

Agency Cost Theory

H0: There is a positive relationship between tangibility and leverage.

H1: There is a negative relationship between tangibility and leverage

Hypothesis 5

Trade Off Theory

H0: There is a positive relationship between non debt tax shields and leverage.

H1: There is a negative relationship between non debt tax shields and leverage

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Hypothesis 6

Trade Off Theory

H0: There is a positive relationship between volatility and leverage.

H1: There is a negative relationship between non volatility and leverage

Pecking Order Theory

H0: There is a positive relationship between volatility and leverage.

H1: There is a negative relationship between volatility and leverage

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3.3 EXPLANATORY VARIABLES

The explanatory variables consist of those that have commonly been documented in the

literature to affect the firm leverage. In this study, there are consists six independent

variables and defined as follows:

1) Profitability (PROF)

The measurement of profitability is by using the ratio of operating income over

total assets (ROA).

2) Growth (GROW)

The measurement of growth opportunities is using ratio of book to market equity.

3) Size (SIZE)

To test the effect of firm size on the optimal debt level, the natural logarithm of

net sales had been used as a measurement.

4) Tangibility (TANG)

That is defined as the ratio of fixed assets to total assets for empirical tests.

5) Non Debt Tax Shield (NDTS)

For empirical measurement, by using the total depreciation from the firm’s profit

and loss account divided by total assets.

6) Volatility (VOLA)

To test the volatility, the measurement is by using average value of the firm’s total

assets over time.

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3.4 RESEARCH DESIGN

3.4.1 INTRODUCTION

This chapter will discuss the procedure and methodology used for the purpose of this

research. The procedure for collecting and method in an attempt of analyzing data which

have relationship between dependent variable (leverage) and the independent variables

(profitability, growth, size, tangibility, non debt tax shield and volatility). The discussion

will provide in depth understanding on the relationship of variables. The study is

covering the period of 10 years from year 1998 until 2007 related to the evidence by

using data of companies listed on the Bursa Malaysia.

3.4.2 DATA COLLECTION

The data and information obtained regarding to this study are from secondary data. All

data is gathered from the year 1998 until 2007.The information sources are from data

stream, journals, books, magazines, newspapers and internet. All these sources were

collected from Bursa Malaysia library, UiTM library, UUM library, USM library and

Annual Report of various companies listed on the Bursa Malaysia from year 1998 until

2007.

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3.4.3 MULTIPLE REGRESSION ANALYSIS

A statistical technique will be used to attempt and establish a functional relationship

between the dependent and independent variables. For this study, only four statistical

techniques have been used in order to test the data. The techniques are Multiple

Regression Equation that is consists of T- statistic, F-statistic and R square. In using this

regression, the estimated regression model based on the some selected variables should

be developed.

General Form of Equation

LEVERAGE = f (PROF, GROW, SIZE, TANG, NDTS, VOLA)

Specific Form of Equation

X = a + β1 X1 + β2 X2 + β3 X3 + β4 X4 + β5 X5 + β6 X6 + e

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LEVERAGE = a + β1 PROF+ β2 GROW + β3 SIZE +

β4 TANG + β5 NDTS + β6 VOLA + e

Where,

LEV = Leverage

a = Constant

β1, β2, β3, β4, β5, β6 = Regression Coefficient

PROF = Profitability

GROW = Growth

SIZE = Size

TANG = Tangibility

NDTS = Non Debt Tax Shield

VOLA = Volatility

e = Error term

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3.4.4 COEFFICIENT OF DETERMINATION (R²)

R2 measures the proportion of the total variation or dispersion in the dependent variable

that is explained by regression equation. Therefore, R2 informs us about how good the

line is best fit and also measures the percentage of a change in the dependent variable that

can be measured or explained by the change in the dependent variables. The value of the

R2 is range from 0 -1.

Coefficient of determination can be divided into three main situations:

If R² = 0

 This means none of the change in the dependent variable can be measured by the

change in the independent variables.

 The estimated equation is useless ( wrong choice of variables)

 The equation has no explanatory power.

If R² =1

 This means 100% of the change in the dependent variable can be explained by the

change in the independent variables

 The equation has full explanatory power

If R² = 0.85

 85% of the change in the dependent variable can be explained by the change in

the independent variables.

Normally the higher the value of coefficient of determination, the higher the explanatory

power of the estimated equation and more accurate for forecasting purposes.

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3.4.5 HYPOTHESES TESTING

T- Statistic

T- Stat is used to determine whether there is a significant relationship between the

dependent and each of the independent variable. If the calculated t stat is greater than

critical t value, independent variable is significant to dependent variable at 95%

confidence level. However if the t-stat is less than critical t value the result is vice versa.

It can be said that the variable is not important and ought to be replaced.

Interpretation of T- Statistic

According to the t-distribution table,

T-stat = Value of coefficient

Standard error of coefficient

Computed T- value > Critical F- value, reject Hο

Computed T- value < Critical F- value, accept Hο

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F – Statistic

F – Test is used to test the hypothesis that the variation in the independent variable

explained a significant portion of the variation in the dependent variable in the overall

model.

F – Test can be calculated as follows;

Explained variation / (k-1)

F=
Unexplained variation / (n-k)

Where;

F = Critical value

k = No. of Independent Variables

n = No. of Observation

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To conduct test

 The calculated F value must be compared with the critical value from the tabled F

value

 If the calculated F value is higher than the tabled value, there is a significant

relationship between the independent variables and the dependent variable.

 Therefore the overall model is said to be significant.

The computed F-value will be compared with F distribution table and the result will be

determined by:

Computed F-value > Critical F-value, reject Hο

Computed F-value < Critical F-value, accept Hο

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RESEARCH SCHEDULE

WEEK TASK
1 Collection of information for research
2 Discussion with supervisor about the specification draft
3 Develop a detailed specification for the design.

Create a work schedule.

4-5 Design proposal.
6 Discuss with supervisor regarding the proposal.
7 Proposal correction and amendment.
8 Complete design proposal.
9 Finding the data.
10 Hypotheses testing.
11 - 14 Work on thesis.

RESEARCH BUDGET

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NO ITEM COST (RM)

1) Traveling Costs

 Transportation 300

 Accommodation 200

2) Stationary

 Papers 150

 Ink printer
300

 Photocopying 150

3) Books and Journals 600

4) Software 300

TOTAL 2000

REFERENCES

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Ang, J., J. Chua, and McConnell (1982). ‘The Administrative Costs of Corporate
Bankruptcy: A Note, Journal of Finance, Vol. 37, pp. 219-226.

Booth, A., V. Aivazian, A. Demirguc Kunt, and V. Maksimovic (2001). ‘Capital Structure
in Developing Countries. The Journal of Finance, Vol.56, pp. 87-130

Chingfu Chang, Alice C. Lee and Cheng F. Lee (2008). ‘Determinants of Capital
Structure Choice: A Structural Equation Modeling Approach.

DeAngelo, A., and R. Masulis (1980). ‘Optimal Capital Structure under Corporate and

Personal Taxation, Journal of Financial Economics Vol. 8, pp.3-29.

Easterbrook, F. (1984). Two Agency Cost Explanations of Dividends, American

Economic Review Vol.74, pp. 650-659.

Fama, E., and K. French (2000). ‘Testing Tradeoff and Pecking Order Predictions about

Dividends and Debt’, working paper, University of Chicago and Sloan School of

Management (MIT).

Galai, D., and R. Masulis (1976). The Option Pricing Model and the Risk Factor of

Stock, Journal of Financial Economics Vol. 3, pp. 631-644.

Gardner, J., and C. Trzcinka (1992). ‘All-Equity Firms and the Balancing Theory of

Capital Structure, Journal of Financial Research Vol.15, pp. 77-90.

Grossman, S., and O. Hart (1982). ‘Corporate Financial Structure and Managerial

Incentives, in: McCall, J. (ed.)’, The Economics of Information and Uncertainty,

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University of Chicago Press.

Harris M. and A. Raviv (1990). ‘Capital Structure and the Informational Role of Debt’,

Journal of Finance Vol. 45

Imen Bouallegui (2004). ‘The Dynamics of Capital Structure: Panel Data Analysis:

Evidence From New High Tech German Firms

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