International Differences in Financial Leverage
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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:
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Legal and Institutional Environment
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Financial Markets and Banking System
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Macroeconomic Climate
The table below summarizes how these factors may influence capital structure (not exhaustive).
| FACTOR | COUNTRY TRAIT | FINANCIAL LEVERAGE IMPACT | DEBT MATURITY |
|---|---|---|---|
| Court efficiency | Highly efficient | Lower | Longer |
| Legal system | Civil law | Higher | Shorter |
| Legal system | Common law | Lower | Longer |
| Tax system | Equity biased | Lower | N/A |
| Inflation | High | Lower | Shorter |
| Institutional Investors (ex. pension funds) | Many and well developed | Lower | Longer |