Examining Determinants Shaping Capital Structure: A Study of Swedish Industrial Firms Empirical evidence in Sweden between 2017-2023

Abstract

This study examines the determinants influencing the capital structure of Swedish firms in the industrial sector. Further, it investigates the effects of the Covid-19 pandemic on those determinants. Empirical data from the beginning of 2017 to the end of 2023 are collected from Capital IQ and used together with an Ordinary Least Square (OLS) regression analysis. The study analyses key determinants such as tangibility, profitability, growth, non-debt tax shields, and firm size. Results reveal that tangibility had the most significant impact on leverage before the pandemic since firms holding more tangible assets resulted in higher leverage. Further, during Covid-19, the emphasis on enduring liquidity limited tangibility’s influence on leverage. Profitability showed a negative relationship with leverage throughout the study, aligned with the pecking order theory. Non-debt tax shields showed a significant negative influence on the leverage ratio, implying they can substitute the tax benefits of debt financing. Finally, the thesis concludes that determinants like tangibility, profitability, and non-debt tax shield are crucial for capital structure, while it is also important to account for unexpected external economic shocks in the analysis.