Evidence on the Optimal Capital Structure for Korea Composite Stock Price Index (KOSPI)-Listed Firms: Employing Inter- and Intra-Industry Analyses

This study focuses on investigating the existence of optimal capital structure for firms listed in KOSPI stock market by employing inter- and intra-industry analyses. To date, very little attention seems to be paid to this subject in modern finance, considering that a firm’s value is increases as it approaches its optimal level of financial leverage. Moreover, it attempts to identify one of the most relevant theories which significantly accounts for the existence of a firm’s optimal capital structure. Relevant theory such as Myers’ pecking order was contemplated to postulate a corresponding hypothesis. Concerning the empirical methodologies to test for a hypothesized existence of an optimal capital structure, analysis of variance and analysis of covariance models were separately utilized in the context of parametric and nonparametric statistical approaches. Results suggested that an optimal level of capital structure for KOSPI-listed firms at the intra-industry level does not exist. However, differences in leverage were pronounced among 24 sample industries, which may suggest that optimal levels of capital structure appear to exist in the Korean capital market at the inter-industry level.