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Lesson 17 of 20

International Differences in Financial Leverage

While industry norms can say a lot about capital structure, other relevant variables such as taxation, regulation, bankruptcy costs, agency costs, and culture can vary widely across national borders.

Factors that help explain capital structure in an international environment:

  • Legal and Institutional Environment

  • Financial Markets and Banking System

  • Macroeconomic Climate

The table below summarizes how these factors may influence capital structure (not exhaustive).

FACTORCOUNTRY TRAITFINANCIAL LEVERAGE IMPACTDEBT MATURITY
Court efficiencyHighly efficientLowerLonger
Legal systemCivil lawHigherShorter
Legal systemCommon lawLowerLonger
Tax systemEquity biasedLowerN/A
InflationHighLowerShorter
Institutional Investors (ex. pension funds)Many and well developedLowerLonger
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Evaluating Capital Structure Policy

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Dividend and Share Repurchase Policies

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Corporate Finance Part 1

20 lessons

Lessons

1
CFA Level 2: Corporate Finance Part 1 – Introduction
2
Introduction to Capital Structure and Leverage
3
Introductory Capital Budgeting Remarks
4
Expansion Projects vs. Replacement Projects and Cash Flows
5
Impacts of Depreciation Method Choice on Capital Budget Analysis
6
Inflation and Capital Budgeting
7
Mutually Exclusive Capital Projects with Unequal Lives
8
Equivalent Annual Annuity (EAA) Approach
9
Least Common Multiple of Lives Approach
10
Stand Alone Risk and Capital Projects
11
CAPM and a Capital Project’s Discount Rate
12
Capital Projects and Real Options
13
Common Pitfalls in Capital Budgeting
14
Capital Budgeting Alternatives to NPV and IRR Analysis
15
Modigliani-Miller and Capital Structure Theory
16
Evaluating Capital Structure Policy
17
International Differences in Financial Leverage
18
Dividend and Share Repurchase Policies
19
Factors Affecting Corporate Dividend Policy Decisions
20
Signals from Dividend Policies
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