| This dissertation investigated relationships to firm debt level, of a set of variables which previous literature from several related areas has suggested as being important determinants of the level of debt usage. Indicator variables were defined based on prior literature. A two-step multivariate procedure was used, employing principal components factor analysis followed by multiple regression analysis.; The study generated four factors consistent with the areas of Signalling, Bankruptcy Risk, Agency Cost, and Non-debt Tax Shields and a fifth factor previously not identified by theory representing Asset Utilization. Signalling was negatively related to debt level as predicted. The Non-debt Tax Shield factor was negatively related to debt level which suggests the substitution effect is more important than the income effect. The Agency Cost factor was positively related, contrary to theory, and Bankruptcy Risk result was mixed and not statistically significant. The Asset Utilization factor was positively related to debt level suggesting high asset utilization encourages use of debt.; The study suggests liquidity measures may be more important than profitability measures in determination of debt level. Also, accessibility to low-cost debt, as indicated by high liquidity and efficient Asset Utilization, may be a better indicator of subsequent debt usage, rather than the need for debt. The opposite sign for Agency Cost and mixed result for Bankruptcy Risk suggest there are apparently other variables, as yet unidentified which impact debt usage. |
