ABSTRACT
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 and economic development, as well as firm-level factors. The issue is investigated in the context of Taiwan where industrial policy has been considered to play a strategic role in its economic success. The results show the significance of financial flexibility, industry effect, macroeconomic conditions, economic growth and the stages of economic development, as well as the effect of firm-level factors in the determination of capital structure in the plastics and textile industries of Taiwan. However, the findings reveal no significant impact of government industrial policy on capital structure change.
