Analysis on the Capital Structure of Taiwan's Security Industry

Abstract

Traditionally, empirical studies on corporate capital structure exclude financial firms from the target sample. Kuo and Lee (2003) is one of the few attempts to conduct empirical analysis of determinants of financial industry. They analyze the capital structure of commercial banks in Taiwan. In this paper, I try to analyze the capital structure of Taiwan's security industry and discuss related financial theory, especially Titman's (1984) theory on the interaction between product attributes and capital structure. I will use a fixed-effect panel data regression model to find that an OTC firm's profitability is about the same as a small firm's. Yet, an OTC firm's EPS is significantly larger than a small firm's. An OTC firm's service is much more diversified and does not rely on brokerage only. An OTC firm's debt ratio is significantly higher than a non-OTC firm's. This research suggests that to compete with foreign security firms in the event that Taiwan becomes a member of the WTO, Taiwan's security firms must strengthen their ability to raise debts.