Capital Market Analysis
UDC: 658.14 Keywords: determinants of capital structure – extent of leverage – listed companies in the Czech Republic
Determinants of Capital Structure
Empirical Evidence from the Czech Republic
Patrik BAUER*
The modern theory of capital structure was established by Modigliani and Miller (1958). Thirty-seven years later, Rajan and Zingales (1995, p. 1421) stated: “Theory has clearly made some progress on the subject. We now understand the most important departures from the Modigliani and Miller assumptions that make capital structure relevant to a firm’s value. However, very little is known about the empirical relevance of the different theories.” Similarly, Harris and Raviv (1991, p. 299) in their survey of capital structure theories claimed: “The models surveyed have identified a large number of potential determinants of capital structure. The empirical work so far has not, however, sorted out which of these are important in various contexts.” Thus, several conditional theories of capital structure exist (none is universal), but very little is known about their empirical relevance. Moreover, the existing empirical evidence is based mainly on data from developed countries (G7 countries). Findings based on data from developing countries have not appeared until recently – for example Booth et al. (2001)1 or Huang and Song (2002)2. So far, no study has been published based on data from transition countries of Central and Eastern Europe, at least to the extent of this author’s knowledge. The main goal of this paper is to fill this gap, exploring the case of the Czech Republic. The structure of this paper is as follows. In Section 1 the most prominent theoretical and empirical findings are surveyed. In Section 2 the potential determinants of capital structure are summarized and theoretical and empirical evidence concerning these determinants is provided. Section 3 is the empirical part of the paper. Here the data is described, measures of
* Institute of
Determinants of Capital Structure
Empirical Evidence from the Czech Republic
Patrik BAUER*
The modern theory of capital structure was established by Modigliani and Miller (1958). Thirty-seven years later, Rajan and Zingales (1995, p. 1421) stated: “Theory has clearly made some progress on the subject. We now understand the most important departures from the Modigliani and Miller assumptions that make capital structure relevant to a firm’s value. However, very little is known about the empirical relevance of the different theories.” Similarly, Harris and Raviv (1991, p. 299) in their survey of capital structure theories claimed: “The models surveyed have identified a large number of potential determinants of capital structure. The empirical work so far has not, however, sorted out which of these are important in various contexts.” Thus, several conditional theories of capital structure exist (none is universal), but very little is known about their empirical relevance. Moreover, the existing empirical evidence is based mainly on data from developed countries (G7 countries). Findings based on data from developing countries have not appeared until recently – for example Booth et al. (2001)1 or Huang and Song (2002)2. So far, no study has been published based on data from transition countries of Central and Eastern Europe, at least to the extent of this author’s knowledge. The main goal of this paper is to fill this gap, exploring the case of the Czech Republic. The structure of this paper is as follows. In Section 1 the most prominent theoretical and empirical findings are surveyed. In Section 2 the potential determinants of capital structure are summarized and theoretical and empirical evidence concerning these determinants is provided. Section 3 is the empirical part of the paper. Here the data is described, measures of
* Institute of
References: 20 Finance a úvûr – Czech Journal of Economics and Finance, 54, 2004, ã Finance a úvûr – Czech Journal of Economics and Finance, 54, 2004, ã. 1-2 21