Since Modigliani and Miller (1958) discussed that the capital structure is irrelevant for firms in the perfect market, a lot of theories have been established to probe the optimal capital structure for firms in the real world and the involved influencing factors. Most of these studies are conducted from two angles which are factors from institutional differences and factors from firm characteristic differences. In order to have a further understanding of the capital structure theories, this particular essay aims to reviewing the existed literature and draw some basic conclusions from the review. This essay is composed of four parts including a brief introduction about capital structure, investigation on differences between countries, assessment on firms within the same countries and a general conclusion.
Differences between countries
The capital structure differentials across countries have been wildly and deeply studied. Most of the studies come to the conclusion that firms in the Anglo-American economics have lower leverage level than those in Japan and continental Europe.
Rutherford (1988) reviewed the prior researches and obtains extra evidences, and he finds that Japanese, French and German companies have higher leverage level than American and UK companies. Borio's study (1990) confirmed this view and he cataloged firms in Anglo-American economics as "low leverage" and firms in Japan and continental Europe as "high leverage". However, Rajan and Zingales (1995) (RZ) achieve different results with previous studies. They analyze G-7 countries and find that the German and UK companies have the lowest leverage level and other countries have almost the same leverage level. RZ (1995) claim that the differences between their results and previous one may due to four possible reasons, including differences in measures, different adjustments to correct for differences in accounting, different samples and capital structure may have been changing continually in different countries. Although RZ...