Introduction The following is an essay on the cross sectional differences in corporate capital structures. The first part of this discussion entails the background and the origins of corporate capital structures, how they came to be and the disparities in these corporate capital structures. The other part incorporates analysis of the empirical evidence, which has been supplied by previous studies on econometrics and corporate capital structures. Explanation on the cross sectional differences in corporate capital structures Corporate capital structure refers to the characteristics of a firm’s capital in reference to its equity (mostly the preferred and common stock), debts (which include bonds and loans), and hybrid securities (convertible debt and preferred shares.) (Allen, Bradley & Stewart 2008). Equity financing usually refers to the capital which has been contributed or brought about by the owners of the companies who are the shareholders. Debt financing on the other hand refers to the capital which has been sourced from the banks or from the people who have company’s bonds. The corporate capital structure is an indicator of the firm’s liabilities and assets as it unearths who has acclaim in the company’s assets and whether the claim is a debt claim or an equity claim. The proportion of the company’s equity in relation to the company’s debt is the ratio of leverage (Allen, Bradley & Stewart 2008). The corporate capital structure is quite intriguing because; there are various types of equity and debt financing. For instance, a debt can be held privately or publicly. A debt can also be a secured debt or an unsecured debt. The debt can also vary in regard to its maturity period either long term or short term. The capital structure can also be taken to be an illustration of how a corporation organizes its cash flow and how it sources its financial resources with which it operates. Different businesses have got different kinds of capital structures geared towards meeting the internal and external needs and for return on shareholders’ capital. A balance sheet is one of the clear examples of the internal and external capital structure of every company. As indicated in the balance sheets the corporate capital structures are derived from three vital bocks. One of those blocks is the long term debt, which refers to the financial obligations or resources supplied to the company but they will not be due or repaid within the next twelve months. This debt mostly constitutes of resources such as bonds, capital lease obligations as well as mortgages (Baker & Wulgler 2002). The second block is the preferred stock which is a representation of the of the ownership interests in the company. The preferred stock is usually static and the owners of this stock are not allowed to share the capital gains which have been made by the company when it grows. The third and the most important block is the common stockholders’ equity. This is a demonstration of the underlying investment made by the shareholders of the company. This equity is made up of values assigned to the shares of the stupendous stock, the capital gains made by an increase in the value of the existing stock, and the retained profits which are portions retained