This paper investigates how firms in capital market-oriented economies (the United Kingdom and the United States) and bank-oriented economies (France, Germany, and Japan) determine their capital structure. Using panel data and a two-step system-GMM procedure, the authors find that the leverage ratio is positively affected by asset tangibility and firm size but declines with increased profitability, growth opportunities, and share price performance in both types of economies. The leverage ratio is also influenced by market conditions, and the degree and effectiveness of these determinants vary across countries due to differences in legal and financial traditions. The results confirm that firms have target leverage ratios, with French firms adjusting their capital structure more quickly than Japanese firms. Overall, the capital structure of a firm is heavily influenced by economic environment, institutional practices, corporate governance, tax systems, borrower-lender relationships, exposure to capital markets, and investor protection.This paper investigates how firms in capital market-oriented economies (the United Kingdom and the United States) and bank-oriented economies (France, Germany, and Japan) determine their capital structure. Using panel data and a two-step system-GMM procedure, the authors find that the leverage ratio is positively affected by asset tangibility and firm size but declines with increased profitability, growth opportunities, and share price performance in both types of economies. The leverage ratio is also influenced by market conditions, and the degree and effectiveness of these determinants vary across countries due to differences in legal and financial traditions. The results confirm that firms have target leverage ratios, with French firms adjusting their capital structure more quickly than Japanese firms. Overall, the capital structure of a firm is heavily influenced by economic environment, institutional practices, corporate governance, tax systems, borrower-lender relationships, exposure to capital markets, and investor protection.