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Macroeconomic Variables In Capital Structure

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Yeh & Roca (2010) investigated the influence of macroeconomic variables and their relation with firm-specific variables to determine the capital structure of the textile, plastics and electronics industries in Taiwan. They found that macroeconomic factors have significant positive impact on growth opportunities but the results become reversed when macroeconomic conditions worsen. Stephan & Talavera (2004) analyzed the relationship between optimal debt and macroeconomic volatility and their study revealed that when macroeconomic variability like inflation increases firms reduce the use of optimal level of debt. Gulati & Zantout (1997) and Bas et al., (2009) also reported that inflation rate inversely affects leverage decision of a firm. They …show more content…
The study claimed that some firm-specific variables like tangibility, liquidity, and size have significant positive relationship with leverage while profitability has significant negative relationship with leverage which supports the POT of leverage. On the other hand, macroeconomic variable like GDP growth has a significant positive relationship with leverage. GDP growth rate is found to be positively related with leverage in the study of Bas et al., (2009) but GDP growth rate is also found to be negatively related with leverage in the studies of Gurcharan (2010) and Dincergok and Yalciner (2011). However, the authors also found a negative relationship between inflation and leverage. In addition, Chadegani et al., (2011) also reported a negative relationship between inflation and …show more content…
Firm specific independent variables include liquidity, profitability, tangibility, debt coverage, growth rate, and size. On the other hand, macroeconomic variables include inflation, interest rate, GDP growth rate, and stock market development. The firm financial data are collected from the published annual reports of the twenty pharmaceutical companies over the period 2008-2013. We collected data from 2008 through 2013, totaling 120 observations for all firms. However, due to missing values, the number of observations was below 120 by the time we analyze the complete model for some

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