THE DETERMINANTS OF CORPORATE DEBT RATIOS IN CHOSEN EUROPEAN COUNTRIES

Abstract

The capital structure theories assume that level of debt is determined by company’s value, expected cash sources and profitability. The goal of this paper is to analyze determinants of corporate debt ratios. The main focus was put on analyzing whether the differences of willingness to use debt by companies result from profitability and/or collateral value of assets and/or company’s size. The analysis of public companies from France, Germany, United Kingdom and the Netherlands, from non-financial sectors, in years 2003-2010 was carried out. No evidence for positive connection association between debt level and profitability was found. We observed reverse relationship, however we cannot treat this as a general rule. We also cannot claim there is any particular corporate debt level specific because of country or sector, however the company’s size seems to be important determinant of debt usage.

DOI: http://dx.doi.org/10.5755/j01.em.17.1.2252