Factors Explaining Debt Firm Policy: A Comparison between Five Intercontinental Countries

Abstract

We test the factors explaining the debt policy of firms across five continents. To this end, we examine samples from South Africa, Australia, Brazil, India and Spain over a period of 8 years from 2003 to 2010. The results manipulate differences in debt policy for all countries (except for the variable Return on Assets, ROA). As for the effect of activity sectors on firm debt policy, higher performance led to lower firm debt ratios. Furthermore, we concluded some differences in other variables. Higher tangibility ratios for firms from South Africa, India and Spain led to higher capital structure ratios. Larger firms from Brazil led to lower short term debt ratio. We could not find evidence on the effect of firm growth opportunities in Brazil and India. Furthermore, we concluded to a positive and a statistically significant effect of liquidity ratio for Australia and India, and a positive and a statistically significant effect of firm age for firms from Spain.