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Despite the extensive research of over half a century, the knowledge of the determinants of capital structure for corporations remains a controversial issue in modern corporate finance. Since the seminal work by Modigliani and Miller (1958), a plethora of research has been undertaken especially investigating the determinants of capital structure on domestic corporations (DCs) in the US.

Optimal capital structure may have important implication on firm valuation, capital budgeting decisions and long term corporate profits. Very little research has been published on capital structure determinants for multinational corporations (MCs). Some studies have been undertaken to investigate cross sectional differences in capital structure between US based DCs and MCs during 1990’s (Lee and Kwok, 1988; Burgman, 1996; Homaifer et al., 1998; Chen et al., 1997), little research has been published on comparisons of the determinants of capital structure for DCs and MCs. In addition, the increased importance of ‘globalised markets’ with global competition suggests that the determinants of MCs capital structure are becoming increasingly important, particularly if they differ from domestic corporations.

This research draws upon existing theoretical determinants of capital structure and empirically tests the hypotheses across a sample of multinational and domestic corporations in Australia. Although the sample is from Australia the results have important implications for multinational corporations based in other countries.

The paper is divided into five sections. The next section reviews previous studies of capital structure literature, develops hypotheses and defines the variables. The third and fourth sections provide discussion of data collection and method. Section five discusses the results and section six summarises the key findings and concludes the paper.

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