302F财务杠杆在企业中的应用研究 外文原文.doc

DETERMINANTS OF FIRM’S FINANCIAL LEVERAGE: A CRITICAL REVIEW By Rahul Kumar Abstract The purpose of this review paper is to critically investigate the underlying factors that affect firm’s financial leverage from the perspective of theoretical underpinnings. We reviewed 107 papers published from 1991 to 2005 in the core, non-core and other academic journals. On the basis of critical review, this research has identified a number of determinants of financial leverage based upon logical argume nts identified in the literatures. Major findings show that various frameworks like leverage irrelevance, static trade off, pecking order, asymmetric information signaling framework have partly helped us in understanding the underlying factors determining the firm’s financial leverage, there is no consensus and there is no universal factor determining financial leverage. The paper sets out two challenges for future research: one, how to integrate different factors determining firm’s financial leverage into a common framework and second, what are the explanatory factors determining firm’s financial leverage in a network phenomena Keywords : Capital structure, financial leverage 1. Introduction In general, companies may raise money from internal and external sources. They can raise money from internal sources by plowing back part of their profits, which would otherwise have been distributed as dividend to shareholders. Or, they can raise money from external sources by an issue of debt or equity. When a company issues shares, shareholders hope to receive dividend on their investment. However, the company is not obliged to pay any dividend. Because dividend is discretionary, it is not considered to be a business expense. When a company borrows money by way of debt, it promises to make regular interest payment and to repay the principal (i.e. the original amount borrowed). If profits rise, the debt holders continue to receive a fixed interest payment, so that all the gains go to the