Publisher's Synopsis
This study aims to gain insights into the influence of endogenous and exogenous determinants of firms' decisions to issue either debt or equity at the margin. The data set analyzed consists of the accounting structure variables, industry classification and year of issue relating to 382 marginal debt or equity issues by UK Financial Times 350 firms, over the period 1991 to 1996. A logistic regression methodology is applied to construct and estimate reduced-form multivariate models to facilitate the testing of relationships derived from the literature and theoretical development within the paper. The multivariate modelling exercise results in a reduced-form model which encapsulates the key determinants of the issue decision. It appears that the capital and interest gearing of the firm, its size, and its tax situation are the endogenous factors which influence the firm's marginal capital structure decision. Macroeconomic influences, as proxied by year of issue, are also significant, while industry classification is insignificant. This model shows a high degree of classification power in the estimation sample and when tested upon a holdout sample.
