How Gearing Levels are influenced by Different Factors – An Analysis of the Capital Structure of Public Companies in UK and US
Section One – Introduction
Statement of the Problem
The topic of capital structure and its determinants is one of the most debatable topics in finance. The factors which influence companies decisions regarding their gearing levels have been discussed in several studies and many theories have been presented to provide explanation to the level of gearing that companies opt for (Panigrahi, 2010). However, it has been clearly understood that no single theory or reasoning is best suitable for explaining decisions made by companies regarding their capital structure (Ghosh, 2012). There are many factors, which affect management decisions pertaining capital structure, and it is, therefore, important to consider them in a collective study. Furthermore, it is also understood that gearing level of companies is not only affected by companies’ own financial performance and internal factors, but economy wide factors such as corruption, GDP, inflation, and tax regime etc. (Fan et al., 2012) also play an important role in these decisions.
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