Capital Structure Determinants A case study of the European Automotive Industry

Abstract

The thesis examines what variables explain firms’ choice of capital structure. The report centers around the automotive industry where Europe’s largest automotive manufacturers are the framework for the report. Firms included in the thesis are BMW, Daimler, PSA and Volkswagen. By using a regression analysis we were able to measure how different variables correlate with the firm’s leverage. Therefore, the statistical analysis enables the researcher to get a notion on what variables affect firm’s capital structure choice. Variables that were considered as possible determinants of capital structure are size, growth potential, liquidity, asset tangibility and profitability. The time period during which the data was collected from is 2010 to 2019, the reason for this is to exclude as many potential externalities that would otherwise affect the result presented in the thesis. The study finds significant evidence, using a pooled OLS model and a fixed effects model, that profitability, asset tangibility and growth potential are negatively correlated with leverage. Considering the two explanatory theories for capital structure the report is unable to support any of the two theories as they explain almost equally many variables correlation with leverage.