Debt financing vs equity financing : a case study of Cypriot financial services institutions

Abstract

The capital structure of a firm is the mixture of debt and equity used by firms to operate. Some capital structure theories assert that highly leveraged institutions are disciplined by the markets while other theories state that the gearing is not relevant to the entity's value. The objective of this study is to provide new insights into the level of leverage of financial institutions. Theories of corporate finance tend to lack at empirical evidence. Therefore, this research paper should aid in learning by noting the trends and identifying the firms' financing policies. This thesis yields general statistics describing the sample selected using thirteen year regression models. This is an extensive research conducted through ratio analysis, regression analysis and observation of trends over the years 2005 to 2017. A Balanced panel regression was utilised to study the capital structure of Cypriot financial institutions. Some of the findings from this analysis are in line with theoretical frameworks while other results are contradicting.