Capital structure and liquidity during the financial crisis in Serbia: implications for the sustainability of the economy

Abstract

This article employs a new database containing the accounting data from 108 Serbian-listed companies to document the peculiarity of the relationship between liquidity and capital structure characteristics during the crisis period (from 2008 to 2011). We find a significant negative impact of the quick ratio, the cash gap and the revenue quality on leverage and a positive and statistically significant impact of the free cash flow variable and its volatility on leverage. The main finding of this research, relevant to both firm managers and policy makers, is that during the crisis period companies transferred a significant part of the financing burden to their suppliers. Since suppliers are exposed to similar problems during a crisis, the problem of liquidity spirals and the risk of bankruptcy threatens both individual companies and the whole economy.