The aim of this thesis is to expand our understanding of the corporate capital structure puzzle by conducting a more complete empirical investigation of the financing decision. This thesis extends our knowledge of the capital structure decision in at least four major ways. First, it considers the capital structure decision from a broader perspective than is normally taken. Both the total level of debt and the maturity of that debt is taken into consideration when measuring capital structure. Indeed, this study represents the first major attempt to explain cross-sectional variations in debt maturity. The empirical investigation of corporate debt maturities uncovered a number of regularities. The empirical evidence strongly supports the traditional notion that firms match the maturity of liabilities with the maturity of assets. In addition, debt ratios and firm size were found to be positively correlated with debt maturity. These findings support the notion that debt maturity affects agency/information asymmetry costs, bankruptcy costs and transaction costs.
Second, both pecking order theory and static tradeoff variables are considered in attempting to explain cross-sectional variations in debt levels. In the past, many studies have ignored the effects of transaction costs on the ability of firms to change their capital structures. By allowing for the impediments that transaction costs place on the ability of firms to move to their static tradeoff optimal capital structures, a fuller, more complete picture of the "capital structure puzzle" has been gained. The findings presented here suggest that cross-sectional variations in capital structure are much better explained when both historical circumstances and static tradeoff variables are considered. Debt ratios were found to be positively related to firm size and assets in place/investment and negatively related to profitability. These findings support the view that bankruptcy and agency costs and transaction costs/pecking order theory affect debt ratios. Only limited support was found for the tax based theory of capital structure.
Third, this study has used a number of different methods to define both debt levels and debt maturity. This is in contrast to previous capital structure studies where researchers have concentrated on one or two measures of capital structure. The large number of different leverage measures used in this study overcomes these cautions and criticisms allowing greater validity to be placed on the empirical results. The results found here suggest that while there was a relatively high degree of correlation between different measures of capital structure, there were a number of occasions where the choice of the leverage dependent variable affected the sign and significance of the resultant regression co-efficient. This suggests that caution must be placed on analyses which solely base their claims on the results of one dependent measure of leverage.
Finally, this study represents the first major empirical analysis of capital structure in Australia. Analysis of capital structure is important as the capital structure decision is one of the three major financial decisions that a firm makes. In addition, the analysis of both an Australian sample and a US sample allows greater generalization of results compared with studies based solely on US data, and also provides the chance to compare Australian corporate capital structures with US corporate capital structures. The most notable difference between the US and Australian samples was the relatively large amounts of short term debt used by Australian firms. This suggests that short term debt cannot be ignored when one is investigating empirical capital structure regularities of Australian firms.