The determinants of capital structure for Australian multinational and domestic corporations

Shumi Akhtar

Abstract

This study considers the significance of the determinants of capital structure on a sample of Australian multinational and domestic corporations from 1992 to 2001. The results show that the level of leverage does not differ significantly between multinational and domestic corporations. Using cross-sectional Tobit regression analysis the results show that for both types of corporations, growth, profitability and size are significant determinants of leverage. Collateral value of assets is a significant determinant of leverage for domestic corporations. For multinationals bankruptcy costs and the level of geographical diversification are significant. Surprisingly, bankruptcy costs are not significant for domestic corporations. In relation to interaction effects, bankruptcy costs and profitability are significant in explaining multinational leverage relative to domestic leverage. When industry effects are considered the significance of the original determinants remain unchanged however, some industries became significant. Finally, the determinants of capital structure and leverage varied over the sample period for both multinational and domestic corporations.

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Keywords

CAPITAL STRUCTURE; MULTINATIONAL; LEVERAGE

Contact Details Shumi Akhtar School of Finance and Applied Statistics, Faculty of Economics and Commerce. School of Finance and Applied Statistics Building 26, The Australian National University, Canberra, ACT 0200. E-mail: Shumi.Akhtar@anu.edu.au

The author wishes to thank Chris Bilson, Grant Fleming, Barry Oliver and Tom Smith for comments on earlier drafts.

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