Variables that sway the capital structure! Evidence from the US automotive industry

Abstract

AbstractThe choice of capital structure (capst) has significant implications for a firm’s financial performance and value. It is always a challenge for the firms to make the right decision on the capst proportion. The study identifies the firm variables that sway the capst decisions of the US automotive industry. In this study, we utilize unbalanced panel data from 86 firms for the period 2011–2022 making up a total of 670 firm/year observations. The dependent variable is the firm’s capital structure proxied by total debt ratio, long-term debt ratio, and short-term debt ratio, while the independent variables are sales growth, firm size, profitability of firm, and tangibility ratio. Through a quantitative approach and panel regression, the study concluded that profitability of firm has a negative and significant impact on both total debt ratio and short-term debt, while sales growth, firm size, and tangibility ratio have no significant impact on any of the debt variables representing capital structure. These findings provide insights into the financial practices of the US automotive industry sample and can support future decision-making in the industry. These insights can inform decision-making related to capst choices, financial risk management, and strategic planning for automotive industry firms.

Keywords

• US automotive industry
• capital structure decisions
• total debt ratio
• short-term debt ratio
• long-term debt ratio
• panel data study