An Exploratory Study of the Capital Structure of Listed Belgian Companies Based on Pecking Order Theory and Trade-Off Theory

Abstract

The aim of this study is to determine which of the two more important theories of the capital structure—Pecking Order Theory and Trade-off Theory—have the greatest predictive capacity for the level of total debt of large, non-quoted Belgian firms. The method of log-linear multiple regression was used by integrating nine variables capable of explaining the level of firms’ leverage. A comparison of Pecking Order Theory and Trade-off Theory reveals a major contradiction in the determination of the influence of these nine variables. The results highlight a pattern of the hierarchization of the preferences for financing type on behalf of large, non-quoted Belgian firms rather than a behavior of the “seeks optimal capitalization” type.

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