Factors Affecting Capital Structure Decisions

To gain insight into the factors affecting capital structure choice, responses from a Fortune 500 survey are analyzed using factor analysis and cluster analysis. Factor analysis uncovers nine factors explaining 66.7 percent of the variation in the responses. The factor loadings indicate that tax implications, management's desire for flexibility, and market concerns affect capital structure decisions. Perhaps as a result of the type of firms examined in the survey, little indication is provided on the importance of agency costs, signalling, or asymmetric information. Cluster analysis identified two distinct categories of firms. By looking at the mean responses to the survey questions of these two groups, additional insight is gained into the influences affecting capital structure decisions.