The impact of firm size and industry on capital structure decisions

Includes bibliographical referencesThis paper investigates the impact of firm size and industry on the capital structure of listed South African firms. It uses data obtained from firms listed on the Johannesburg Stock Exchange and tests trade-off theory and pecking order theory for firms of various sizes, firms in different industries and also tests for differences between debt maturities. Multiple fixed effect models are used to firstly test for the main factors that impact capital structure and secondly to test which sources of capital are preferred to finance a change in assets. The analysis shows that firms of different sizes and firms that operate in different industries choose their capital structure in various ways. Larger firms are more highly geared debt more than small firms and smaller firms prefer to use internally generated funds. The two main capital structure theories, trade-off and pecking order, do not explain the difference in behaviour adequately. The paper also finds that similar factors impact both long-term and short-term debt