Corporate Debt Dynamics: Sectoral Clustering Analysis Using NACE Classification in Slovakia

Abstract

Research background: Many authors are currently exploring the impact of the industry on the financial structure of enterprises since there are statistically significant differences across various sectors, exposing the industry as a critical factor influencing corporate indebtedness. Clusters of sectors with homogeneous patterns of indebtedness and comparable levels of debt in various economic conditions may be determined, and, therefore, firms and their debt levels should be systematically examined and evaluated. Purpose of the article: The main aim of this paper is to evaluate the level of debt in the Slovak environment on a sample of 19,480 firms from various sectors and to identify the relationships among them to identify sectors with homogeneous patterns of indebtedness and, consequently, comprehend which sectors are the most stable and independent. Methods: Because NACE classification provides a framework for gathering and presenting statistical data based on many economic sectors, the number of input data was reduced based on cluster analysis. Using Ward's hierarchical clustering method using squared Euclidean distance, selected indebtedness ratios were used to define the sectors with comparable debt levels. To determine if there were statistically significant differences between the calculated debt ratios related to the economic sector, the Kruskal-Wallis test was performed. Subsequently, as the results indicated significant differences across various indebtedness ratios, a post hoc analysis was performed. Findings & Value added: A group of NACE activities in which enterprises are sufficiently comparable that it is appropriate to evaluate their debt levels using the chosen indebtedness ratios are considered to be in sectors C, F, G and H, which included to tertiary sector, while the sectors K, R and S may also be grouped in one cluster, while form the secondary sector. The key relevance of our findings is the benchmarking of selected sectors about indebtedness, which may be used to further examine their growth in each of the V4 nations, which is an essential area for the evolution of the European economy as a whole. Studies considering a relatively significant amount of capital structure determinants may be beneficial to owners and managers, regulators, and financial institutions since debt policy affects firm performance, value, and survival.

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