Determinant factors of leverage: an empirical analysis of Spanish corporations

Abstract

To contrast the different factors that can determine the level of debt of firms by means of panel data methodology. Design/methodology/approach – The variables used in the study are: size, generated resources, level of warrants, debt cost, growth opportunities, and reputation. Six hypotheses are considered. Findings – The results obtained suggest that the stated variables, other than reputation, can be considered to be explanatory variables of firm debt level. Using within-groups estimation and generalized least squares, the results suggest that the behavior of the sample throughout the study period is consistent with the fixed effects approach, in which the specific characteristics of each firm remain constant throughout time. Moreover, with respect to the six considered hypotheses, the analysis shows the influence of all stated variables except reputation on the leverage. Originality/value – Adds to the body of research that has focused on the analysis of the financial decisions of the firm, with the level of debt appearing as a relevant factor in explaining the relationship between investment and financing decisions.