Capital Structure and Imperfect Competition in Product Markets

Abstract

Abstract It is often acknowledged that the question of how firms choose their capital structure has not been satisfactorily answered yet: current theories seem to be unable to explain the financing decisions firms actually make. The debate has mainly centred around two apparent empirical regularities. First, many firms paying corporate taxes use only a small amount of debt. Debt ratios are typically of the order of 20 to 30 per cent (see e.g. Wald 1999). Second, similar firms in the same industry often have significantly different capital structures (see e.g. Myers 1984).