The two representative theories explaining the determinants of capital structure in finance are the static trade-off model and the pecking order model. The two models share common predictions regarding the effects of certain factors on capital structure, while holding opposing predictions for some other factors. This study empirically analyzed whether managers of Korean listed firms determine their capital structure by considering the firm characteristics discussed in financial theory. The research method involved conducting annual cross-sectional regressions based on the capital structure model of Fama and French (2002) over the period 1986–2001, and analyzing the regression results using the Fama and MacBeth (1973) approach. The results of this study support the pecking order model in that a negative relationship between leverage and profitability holds, and a negative relationship between market leverage and investment opportunities holds. Conversely, the results support the static trade-off model in that a positive relationship between book leverage and investment opportunities holds, and a negative relationship between the debt ratio and depreciation holds. The results of this study show evidence that leverage is mean-reverting, consistent with the predictions of the trade-off model, but the slow speed of reversion makes it difficult to conclusively determine which model is correct. This study also confirms that changes in earnings and investment are largely absorbed by debt, which supports the predictions of the pecking order model under the assumption that dividends are downwardly rigid.