The Impact of Tangible Assets on Capital Structure - An analysis of Swedish listed companies

Abstract

This thesis examines if tangible assets is a significant explanatory variable to explain the debt to total assets ratio. In addition, further analysis regarding the importance of the composition of the tangible assets is assessed. This is done in order to test if some specific tangible assets can give additional explanatory power to the model trying to explain the capital structure decision within firms. The sample for the analysis consists of listed companies in Sweden with data between 2005 and 2014. The analysis is made with two separate OLS regression models. The first model aim to find the relationship between the overall tangibility and the debt ratio and the second model is designed to capture the effect of the decomposed tangible assets. The results from running the regression shows that the overall tangibility is a significant explanatory variable that is positively related to the debt level. Furthermore, the second regression model shows that the least firm specific assets have the largest impact on capital structure, which is in accordance with previous evidence. Conclusively the results show that tangible assets explain the capital structure decision. The theoretical framework for this thesis is the pecking order and trade-off theory and these theories provide no uniformly explanation to the findings of this paper. Even though the trade-off theory does not explicity discusses the composition of tangible assets, this theory predicts a positve relationship in contrary with pecking order theory. We received postive coefficents on all of our variables for tangible assets and therefore the best theory of these two is the trade-off theory.