The present study aims to investigate to what extent capital structure has an impact on profitability and closely associated factors due to a series of bankruptcies and bail-outs within the last twelve months. The analysis refers to firms listed in the S&P 500 index on January 2004 and evaluates their performance from 2004 to 2008. The results show strong industry-specific characteristics for all factors observed, i.e. gearing, profitability, liquidity, investments and dividends. In addition, findings indicate a negative effect of higher gearing for almost all ten sectors in respect of the core variables analysed. Neither the trade-off nor the pecking order theory can be confirmed, however, more support for the former is found. Due to the complexity of capital structure choice, regulations have very limited effects that require the need for independent non-governmental monitoring agencies to improve transparency and have the authority to intervene if managers act at the expense of public interest.

Auteur
Elmar Puntaier, born in Italy, holds a first degree in Industrial Engineering from the Politecnico di Torino and was awarded an MBA in Finance with distinction from the University of Leicester, following several years of managerial experience within the business-to-business sector. His interest in corporate finance and political economy encouraged him to analyse the causes and consequences of financial crises and the effects of globalisation, taking into account the heterogeneity of organisational structure and size within an increasingly interconnected economy. He now supports early stage businesses in their growth and strategic decision-making, in his role as a business development manager and mentor.