How Particular Firm-Specific Features Influence Corporate Debt Level: A Case Study of Slovak Enterprises

Abstract

Debt financing is related to borrowing funds from enterprises and investors through bonds, banks, or financial institutions. Interest in debt financing has been rapidly growing in recent years and is now considered one of the most common ways an enterprise can increase its capital to run its business. However, the use of a large amount of debt is associated with the management of corporate indebtedness, requiring the tracking of the entire financial performance of the company. The chief objective of this study was to determine and assess the indebtedness level of enterprises operating in the Slovak Republic using 12 crucial debt ratios and then to clarify whether there are statistically relevant dissimilarities in corporate debt as a result of the firm size and its legal form, representing relevant company-specific features having an impact on corporate indebtedness. Subsequently, a more elaborate analysis addressing statistically relevant dissimilarities between separate indebtedness ratios in relation to the size of the company and its legal form was carried out by deploying the nonparametric Kruskal–Wallis test. We leveraged the Bonferroni correction to specify where stochastic ascendancy occurs. The Kruskal–Wallis test result revealed statistically significant dissimilarities in the values of debt ratios as a result of the firm size and the legal form of the company, which confirmed previous results indicating the most relevant determinants shaping corporate debt. Recognizing the repercussions of firm size and legal form on the corporate debt policy plays an important role, as these company-specific features may be perceived as proxies for the default likelihood or for the volatility of corporate assets, making the regulatory process of creditors and stakeholders straightforward. The findings confirmed the theories of numerous researchers who claimed that firm size and legal form are critical aspects of corporate debt.