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The article assess the validity of some of the possible determinants of capital structure. The main purpose of this paper is to assess the validity of some of the possible determinants of capital structure among large European industrials. A secondary purpose is to test the hypothesis that there exist international differences in capital structure norms among the large companies in various European countries. International differences in capital structure norms can be of great importance as determinants of the capital structure of the foreign affiliates of multinational companies. In addition, results of such research would also be useful in comparative analyses of financial markets and systems in different countries. The first part of this paper is a brief survey of the literature regarding published studies of international differences in capital structure and of the determinants of capital structure. In the second part, new data and findings are presented. The paper concludes with a summary of the findings and suggestions for further research.

This paper focuses on the application of a new theory of the multinational enterprise (MNE) to examine the performance of European and U.S. based multinationals. The new theory of the MNE is called the theory of internalization. The first premise of this study is that a theory of the multinational enterprise should be as applicable to European MNEs as to the MNEs based in other home nations such as the United States or Japan. The second premise is that the empirical propositions of a modern theory of the MNE should also apply equally well across the MNEs of all nations. The theory integrates elements from industrial organization and international economics. It is more efficient for a firm to create and use an internal market, rather than incur the prohibitive transactions costs of an outside market. Indeed, in some cases of market failure such a regular market may not exist, for example, in the pricing of proprietary information generated within a firm but taking on the attributes of a public good market. When either natural or unnatural market imperfections exist across nations, then there is an incentive for the MNE to create an internal market, in the same manner as a domestic firm responds to market failure and regulation. imperfections are exogenous. The potential differences in the theories arise only if the MNE is assumed to have the power to generate its own firm specific advantages over time, that is to endogenize them. In essence, this is not a substantive difference, merely a choice of the suitable assumption in modelling the MNE.