The analysis of debt levels in public firms: an international evidence

This study investigates if the widely held predictors of corporate leverage exhibit predictive consistency through times and across countries amidst country heterogeneities such as legal principles, state of economic development and protection of investors’ rights.

We employ financial data for 3,197 unique firms from eight emerging and ten developed countries during the years 2001–2017 and use Tobit regression models, a two-step Fama−MacBeth(1973) regression and panel data regression techniques in order to ensure the robustness of estimates.

We find that firms in the civil French law system exhibit the highest average of a debt (around 27%), whereas firms based in high investors’ protection environment and in developed nations borrow significantly less than their counterparts. Furthermore, among predictors, including a firm's payout ratio, it returns on equity and the cash ratio except the P/B ratio have varying predictability for a corporate debt when firms are classified based on law systems, investors’ rights and the economic scenarios. The crisis period significantly affects the relationship of debt levels with legal systems, investors’ rights and economic development scenario. The author’s estimates are robust to alternate analysis.

This study is unique in its methodological approach and involves a considerably large number of countries and a longer study period for the results to be more generalizable compared to other existing studies.