The impact of industrial policy on capital structure with financial flexibility, macroeconomic conditions and economic growth and development taken into account: evidence from Taiwan

This paper examines the impact of industrial policy on capital structure based on a partial adjustment model of capital structure that incorporates financial flexibility, macroeconomic conditions, economic development as well as firm-level factors. The issue is investigated in the context of Taiwan where industrial policy is widely considered to have played a strategic role in its economic success. The results show the significance of financial flexibility, macroeconomic conditions, economic growth and development, industry effect, as well as firm-level factors in the determination of capital structure change in the plastics and textile industries in Taiwan. However, the findings reveal no significant impact of government industrial policy on capital structure changes.