Capital Structure Determinants of European Union firms : Comparison analysis between euro area members and non-members

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This paper describes an examination of the capital structure determinants of 12,180 non-financial firms that operated in the European Union between 2011 and 2019. The sample was also divided into two groups according to euro and non-euro membership with the objective of assessing the ways in which membership of the euro area influenced financial leverage decisions. Finally, we compared the financial leverage of euro and non-euro members to assess whether variations in capital structure decisions could be observed across the two groups. The results indicate that the existing theories on capital structure determinants appear to hold true for EU organizations and membership of the euro area can be a significant predictor of the financing decisions made by an organization. The observations of capital structure determinants were interpreted through the lens of static trade-off theory and pecking order theory. The outputs of this study provide solid evidence to support the hypothesis that the static trade-off theory provides reliable insights into the financing choices of EU organizations. Pecking-order theory can also be a useful predictor of the financing decisions of firms located in the euro area, especially in situations in which the economics are integrated and share a single monetary policy.
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