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 JFRM  Vol.8 No.3 , September 2019
Capital Structures in German Small and Mid Caps: Does Trade-Off or Pecking Order Theory Explain Current Reality Better?
Abstract:
This paper analyzes the determinants of the capital structure of German companies. The data are based on the year-end values of 44 companies included in the SDAX for the 2017 financial year. The data are examined in a multiple regression analysis according to the ordinary least squares (OLS) method. The result basically shows a strong correlation for the market leverage ratio with the factors of company size and growth opportunities. Profitability plays only a subordinate role. No significant correlation with the capital structure of German companies in the SDAX has been found for the tangibility factor of the assets. Basically, the results of this work support trade-off theory more than pecking order theory and thus point to the existence of an optimal debt ratio.
Cite this paper: Dommes, K. , Schmitt, M. and Steurer, E. (2019) Capital Structures in German Small and Mid Caps: Does Trade-Off or Pecking Order Theory Explain Current Reality Better?. Journal of Financial Risk Management, 8, 147-162. doi: 10.4236/jfrm.2019.83010.
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