This is true in Italy also, though to a lesser extent. While the consistency in correlations may indicate that there are indeed underlying forces that influence capital structure choice, there may also be reason to doubt our understanding of what these forces are or how the institutional differences identified above moderate their influence.
However, very little is known about the empirical relevance of the different theories.
This finding does not seem to be an artifact of either our sample or the period it covers. However, Global Vantage retains firms even if they are dropped from the relevant index, so long as data is available.
Section V concludes.
First, the sample selection criterion used by Global Vantage biases the sample towards the largest listed companies in each country. Finally, regulations such as minimum capital requirements may directly affect capital structure.
Given the figures on coverage, this suggests that while the sample may do well in capturing aggregate leverage in a country, it probably is not representative of the average firm. Unfortunately, it is hard to establish beyond doubt whether the tip of the iceberg is representative of the larger mass hidden below.
We then analyze the major institutional differences across countries and their likely impact on financing decisions.Given the figures on coverage, this suggests that while the sample may do well in capturing aggregate leverage in a country, it probably is not representative of the average firm. But ultimately, international data cannot be made perfectly homogeneous, and the reader will have to interpret our results with all the caveats in mind. A recently compiled database of international corporations, Global Vantage, helps us, at least partially, address this problem. The use of international data provides a unique opportunity for this analysis. But to the extent that common institutions within a country influence both the tip and the mass below, the information gathered from an analysis of tips will have broader implications. If this argument is true, it still leaves the puzzle of why external financing is so costly in Germany. Only Japan has almost the entire sample 97 percent of firms larger than the overall median. Moreover, this study finds bi-directional causation between insider ownership and firm leverage ratios.
We eliminate financial firms such as banks and insurance companies from the sample because their leverage is strongly influenced by explicit or implicit investor insurance schemes such as deposit insurance.
It is remarkable that these factors are, in general, similarly correlated with leverage in other countries also. A possible explanation is that larger firms are better diversified and have a lower probability of being in financial distress.