| Summary: | Abstract
This paper develops a preliminary study to explore the determinants of capital structure of listed and unlisted companies in Germany using panel data methodology. The findings suggest that the capital structure of listed and unlisted firms is significantly different. Also, some insights from the modern finance theory of capital structure are portable to Germany in that firm-specific factors that are identified to be significant in explaining capital structure in empirical studies are also relevant in Germany. The results of the analysis show that leverage significantly increases with tangibility and decreases with size, non-debt tax shield, profitability and growth opportunity. In contrast, tax is found to be insignificant to explain the firm’s financing choice. The capital structure theories such as trade-off and pecking order model are applied to clarify the research results. From the analysis and discussions, the study shows that both theoretical approaches are important to explain the firm’s financing behaviour in Germany; however, greater trust should be placed in the pecking order theory. This is because the result of the analysis is found to be more consistent to this theory. Moreover, the fundamental institutional environment in Germany such as the features of bank-oriented financial market and its present bankruptcy law also has some influences on the firm’s capital structure.
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