Capital structure and law around the world

In this research paper we examine the determinants of capital structure using a large panel of firms from 31 countries, all with different legal systems and different levels of investor protection. Our results confirm that institutional variables play an important role in a firm's capital structure, although firm-level determinants seem to be similar around the world. The most important conclusion of this research concerns the negative impact of the interaction between shareholder rights and profitability on market leverage. It suggests that the more shareholder rights there are, the fewer asymmetric problems occur.