Journal of Finance and Economics

Journal of Finance and Economics

ISSN: 2291-4951 (Print)    ISSN: 2291-496X (Online)

Volume 4 (2016), No. 1, Pages 58-69

DOI: 10.12735/jfe.v4i1p58

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Profits, Firm Size, Growth Opportunities and Capital Structure: An Empirical Test

Umar Butt1 

1College of Business, Zayed University, Dubai, UAE


To Cite this Article     Article Views: 794     Downloads: 525  Since deposited on 2016-01-21


This study aims to answer three very basic questions regarding the capital structure of firms by testing the predictions made by the trade-off theory of capital structure. It employs a variety of data specification to test the relationship of financial leverage with profits, growth and firm size and takes help from existing literature for and against the trade-off model. It aims at testing the relatively aged literature, which widely disregarded the trade-off model with later studies that suggested that adequate data structure does report this theory to be empirically valid. The variety of specifications of data does lead the author to the general result that although most of the predictions of the trade-off model hold true empirically, the results of estimation on profits and leverage still hold that the model only had limited validity empirically.

JEL Classifications: G3, G30, G32, G34

Keywords: profits, financial leverage, capital structure

To Cite this Article: Butt, U. (2016). Profits, firm size, growth opportunities and capital structure: An empirical test. Journal of Finance and Economics, 4(1), 58-69.

Copyright © Umar Butt

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This article is published under license to Science and Education Centre of North America. This is an Open Access article distributed under the terms of the Creative Commons Attribution 4.0 International License.

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Profits, Firm Size, Growth Opportunities and Capital Structure: An Empirical Test