Determinants of capital structure: new evidence from Spanish panel data

This paper analyzes the firm characteristics which are determinants of capi tal structure according to different explanatory theories, and how institut ional characteristics affect capital structure. We have developed a target adjustment model, which has then been confirmed by our empirical evidence. It highlights the fact that the transaction costs borne by Spanish firms ar e inferior to those borne by US firms. Our results are consistent with tax and financial distress theories and with the interdependence between invest ment and financing decisions; they also provide additional evidence on the pecking order and free cash flow theories. Finally, the evidence obtained c onfirms the impact of some institutional characteristics on capital structu re. (C) 2001 Elsevier Science B.V. All rights reserved.