Our main objective is to analyze firm-specific determinates and the role of various country specific factors in determining corporate capital structure. On the other hand, we show that country specific factors can also influence corporate leverage indirectly through their impact on the effect of firm specific factors. We analyze a sample of 59 companies during the years of 2004-2011. We analyze the firm-specific determinants of leverage, like firm size, asset tangibility, profitability, and growth opportunities. Additionally, we incorporate a number of country-specific variables in our analysis, including market size, gross domestic product growth, and inflation rate. We find that the impact of several firm-specific factors on capital structure is significant and considerable explanatory power of country-specific variables beyond firm-specific factors. Prior research in Iran often investigated a firm’s capital structure as influenced by firm-specific factors. In this study, we show that country-specific factors can also influence corporate leverage indirectly through their impact on the effect of firm-specific factors. Overall, the evidence provided here highlights the importance of country-specific factors in corporate capital structure decisions.

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