Firm Financing in the Euro Area: How asset risk affects capital structure decisions within the monetary union

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Chapter 2.4, Relationships with the existing literature and conclusions:
The first thing to highlight, when comparing these results with the ones obtained in previous studies, is the much higher R2 obtained, mainly due to the inclusion of the volatility of market value of assets as additional explanatory variable. This variable, obtained via application of the Black-Scholes-Merton model, affects signicantly the fitting of the regressions, both when using market values of both debt and equity, and when using market values of equity and book values of debt as generally done in other studies. Volatility appears to be the main predictor of firms' behaviour when making financing choices; the inclusion of the variable sometimes affects also the importance of other variables, like implicit (expected) bankruptcy costs and firm size.
Another interesting result is the ambiguous role played by profitability of firms: sometimes this variable results to be positively related with the debt ratio, sometimes the relation is negative. The influence of firm size (here measured in terms of market enterprise value, rather than in terms of sales as in previous research) is marginal: it plays a role in some countries, but not in others, and its effect in some cases becomes insignificant once volatility is included in the regression.
Taxes affect capital structure decisions for most countries; not surprisingly, they are less relevant for firms situated in those countries with the lowest statutory tax rates. The main issue with respect to the role played by taxes lies in the difficulties found in estimating a proper measure of the tax advantage of debt. Given the international dimension that most firms nowadays have, an exact measure of the effective marginal tax rate for a firm would require to decompose geographically the earnings and determine the tax burden for each country in which the firm operates. Unfortunately, available data do not allow to do so. This might

Born in Como (Italy) in 1979, Marco Botta holds a BSc cum laude in financial economics from the Università Cattolica del Sacro Cuore, an MSc in Economics and Finance, awarded with distinction, from the Warwick Business School at the University of Warwick and a PhD in Economics from the Università Cattolica del Sacro Cuore.
He now works as a business consultant at his firm Studio Botta Consulenza Aziendale, based in Como, and teaches Corporate Finance to graduate students of the MSc in Banking and Finance at the Università Cattolica del Sacro Cuore.
His research interests are in corporate finance, performance measurement and applied econometrics.
He also holds the position of adjunct professor at the Università degli Studi dell Insubria, where he teaches Principles of Economics to undergraduate students of the BSc in Industrial Chemistry.
A former fencer, he currently holds the position of delegate of the Italian Olympic Committee for the province of Como.