This article examines the international determinants of capital structure using a large sample of firms from 37 countries. The reliable determinants for leverage are firm size, tangibility, industry leverage, profits, and inflation. The quality of the countries’ institutions affects leverage and the adjustment speed toward target leverage in significant ways. High-quality institutions lead to faster leverage adjustments, whereas laws and traditions that safeguard debt holders relative to stockholders (e.g., more effective bankruptcy procedures and stronger creditor protection) lead to higher leverage.

We examine the dynamic behavior of bank capital using a global sample of 64 countries during the 1994–2010 period. Banks achieve deleveraging primarily through equity growth (rather than asset liquidation). In contrast, they achieve leveraging through reduced earnings retention and substantial asset expansion. The speed of capital structure adjustment is heterogeneous across countries. Banks make faster capital structure adjustments in countries with more stringent capital requirements, better supervisory monitoring, more developed capital markets, and high inflation. In times of crises, banks adjust their capital structure significantly more quickly.