What are the Determinants of the Capital Structure? : Some Evidence for Switzerland

We test leverage predictions of the trade-off and pecking order models usingSwiss data. At an aggregate level, leverage of Swiss firms is comparativelylow, but the results depend crucially on the exact definition of leverage.Confirming the pecking order model but contradicting the trade-off model,more profitable firms use less leverage. Firms with more investment op-portunities apply less leverage, which supports both the trade-off modeland a complex version of the pecking order model. Leverage is also closelyrelated to tangibility of assets and the volatility of a firm’s earnings. Fi-nally, estimating a dynamic panel model, we find that Swiss firms tend tomaintain target leverage ratios. Our results are robust to several alterna-tive estimation techniques.