Capital structure decisions: research in Estonian non‐financial companies

Raul Seppa

33 citations0/0 files storedBaltic Journal of Management

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Corporate Finance and Governance Financial Analysis and Corporate Governance Working Capital and Financial Performance

Abstract

Purpose To investigate the relations between company‐specific financial factors and the capital structure decisions of Estonian non‐financial companies and to examine behavioral differences between companies of different sizes. Design/methodology/approach Totally 260 Estonian non‐financial companies are divided into small‐, medium‐ and large‐companies, each sample being analysed by correlation‐regression method in two aspects – impact of financial factors on static capital structure and capital structure dynamics. Companies' financial statements of 2002/2003 or 2003/2004 are used. Finally, capital structure adjustments in extreme boundaries are analyzed. Findings Capital structure decisions among Estonian non‐financial companies are driven by the pecking order theory, the evidences supporting optimal capital structure choices in long run remain weak. The robustness of the pecking order behavior significantly differs between smaller and bigger companies. Research limitations/implications Limited number of companies surveyed due to hard manual work required to adjust financial accounts. Implication of findings is somewhat limited as the study covers a single country. Originality/value The paper helps to identify financial drivers and to understand motivations behind capital structure decisions of emerging market companies and it supplements earlier studies. Quasi‐equity debt distorts the observed capital structures. Capital structure is adjusted for operating leases and quasi‐equity debt to identify true amount put at risk and its mix between owners and external lenders.

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References

1988The Determinants of Capital Structure Choice 2001The theory and practice of corporate finance: evidence from the field 1984On the Existence of an Optimal Capital Structure: Theory and Evidence 2005Partial adjustment toward target capital structures 1999Testing static tradeoff against pecking order models of capital structure1This paper has benefited from comments by seminar participants at Boston College, Boston Unsiversity, Dartmouth College, Massachusetts Institute of Technology, University of Massachusetts, Ohio State University, University of California at Los Angeles and the NBER, especially Eugene Fama and Robert Gertner. The usual disclaimers apply. Funding from MIT and the Tuck School at Dartmouth College is gratefuly acknowledged. We also thank two reviewers, Richard S. Ruback and Clifford W. Smith, Jr., for helpful comments.1 2005Do Firms Rebalance Their Capital Structures?1994Testing Static Trade-off Against Pecking Order Models of Capital Structure 2009Testing Theories of Capital Structure and Estimating the Speed of Adjustment

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2014THE EFFECT OF RESEARCH AND DEVELOPMENT INVESTMENT ON FIRMS’ FINANCIAL PERFORMANCE: EVIDENCE FROM MANUFACTURING FIRMS IN TURKEY 2018Determinants of capital structure 2012The determinants of capital structure: Evaluation between Shariah-compliant and conventional companies

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