The objective of this study is to investigate how a firm's industrial class, size, growthrate, profitrate and business risk (measured by variability of profit rate) determine its capital structure.
The investigation of the determinants of capital structure is performed through a statistical examination of five specific hypotheses. The statistical methods used in this study are oneway analysis of varience and multiple regression analysis.
The first hypothesis about the connection between a firm's industrial classification and its financial leverge and the second hypothesis about the relationship between the size of a firm and its leverage are tested with the aid of oneway analysis of variance.
Remaining three hypotheses that a firm's capital structure can be explained by its growthrate, profitrate and business risk are examined through the use of multiple regression.
The result of these analyses shows that the independent variables such as industry, size, growthrate and profit rate significantly (in statistical terms) affect the capital structure of a firm.
A firm's business risk (measured by variability of profit rate) is, however, shown to have no significant relation with its capital structure.