Main determinants of capital structure and financial sustainability among Italian listed non-financial firms: an empirical survey

This study empirically examines the main determinants of capital structure for listed non-financial firms in Italy and their contribution to financial sustainability, in terms of value creation for shareholders. The results show that both the pecking order theory and the trade-off theory are central in explaining the leverage of these firms and both financial approaches are important in enhancing company value and shareholders’ wealth. Increasing managerial shareholding may have a role in reducing the self-interested behaviours of managers and thus leading to a higher leverage and superior financial sustainability, at least at low levels of holdings, but the results are weak. Institutional shareholding entails a positive impact on leverage owing to the function of control that institutions exert on the overall managerial activity and boards of directors. Moreover, institutions themselves are disposed to finance firms by debt, when they have a control over their boards of directors. The negative relationship between public institution shareholding and leverage implies a strict managerial control and a rigorous debt policy by public institutions. Board size and board composition are negatively related to leverage, whereas chief executive officer duality has a positive impact on leverage, but none of these latter three relationships is statistically significant.

Keywords: Leverage, ownership, governance

Oscar Domenichelli, Main determinants of capital structure and financial sustainability among Italian listed non-financial firms: an empirical survey in "RIVISTA DI STUDI SULLA SOSTENIBILITA'" 1/2011, pp 133-150, DOI: 10.3280/RISS2011-001013