Determinants of capital structure in Nordic countries

Thumbnail Image
Journal Title
Journal ISSN
Volume Title
School of Business | Master's thesis
Degree programme
This paper aims to examine the factors affecting the choice of capital structure for publicly listed firms in four Nordic countries including Denmark, Finland, Norway and Sweden over the period 2004 – 2017. The result of the investigation into firm-specific determinants on the capital structure shows that tangibility and firm size have a significant positive relationship with long-term debt ratio for public firms in most of Nordic countries, except for Finland. On the other hand, profitability is negatively correlated with leverage ratio in all four countries; meanwhile, growth opportunity yields a mixed result: there is a significant negative relationship for Finnish public firms and a significant positive relationship for Danish public firms. Liquidity and Non-debt tax shields have no significant impact on leverage for most of Nordic countries, except for Finland in terms of liquidity and Sweden in terms of non-debt tax shields. Business risk shows a significant negative relationship with leverage ratio in Norway and Sweden. Moreover, by decomposing the sample set into different industrial categories, I find that there is evidence for the existence of industrial effect on firm-specific determinants, as the impact of those determinants on leverage ratio is different in different sectors. The result of the investigation into country-specific effects shows that GDP growth rate and the development of the stock market have a significant negative correlation with long-term debt ratio. On the other hand, the estimation results show that the development of the banking industry, the development of the bond market, and the inflation rate have no significant impact on capital structure decision for public firms in the Nordic region. These results may imply that Nordic firms in general prefer equity financing to debt financing, and when it comes to debt financing decision these firms prefer corporate bonds to bank loans.
Thesis advisor
Puttonen, Vesa
determinants, capital, capital structure, Nordic countries
Other note