Asset Tangibility and Capital Structure : A Cross Country Analysis

Existing studies of capital structure show a positive association between tangible assets and leverage, but these studies have ignored the potential systematic variation in magnitude due to institutional heterogeneity across countries. Using a sample from 32 countries, we find that the association between tangible assets and leverage is weaker if firms are located in countries with stronger creditors’ rights, better financial development, good governance, and more transparency. Using the global financial crisis as a robustness check, we find that the role of tangibility as a determinant of leverage becomes stronger. However, this crisis-period association becomes less positive if firms are headquartered in stronger institutional environments, i.e., stronger creditors rights, better financial development, good governance, and high country-level transparency