A Study on Determinants of Capital Structure of Listed Construction Companies

We study the determinants of capital structure of listed construction firms in Korea. Using the KIS-VALUE III database of Korea Information Service Inc., we investigate a total of 1,223 construction companies listed on KOSPI and KOSDAQ for 1990-2007. The positive sign between size of firm and leverage ratio, and the negative sign between unlevered tax reduction effect and leverage ratio support our hypotheses. Although growth and profitability is statistically significant, the positive signs with leverage ratio contradict our hypotheses. Tangible fixed asset ratio shows a negative sign with leverage ratio before the financial crisis, while it reveals a positive sign with debt ratio after the crisis. These results imply that after the financial crisis, financial institutions put more emphasis on firms’ tangible fixed asset ratio, size and profitability.