Country-specific influence on corporate capital structure: A comparison between different country-categorization groups

Abstract

This study analyzes the differences in the debt-to-equity ratio between different country-categorizations over the period 1990-2016 using a dynamic panel approach with aggregate firm-level data. The main results suggest that companies located in countries with Bank-based financial systems and Civil-law legal systems are more likely to have higher debt-to-equity ratios than companies located in Market-based financial systems and Common-law countries. These findings are mainly due to the higher size of the stock market in relation to the size of the banking sector in these countries. The results also show that countries with high scores on the cultural dimensions of Power Distance, and Masculinity tend to have lower debt-to-equity ratios. However, the differences between the country groups diminish as time progresses