Abstract
This paper analyzes the evolution of the main theories regarding the capital structure and the related impact on risk and corporate performance. The capital structure is a dynamic process that changes over time, depending on the variables that influence the overall evolution of the economy, a particular sector, or a company. It may also change depending on the company’s forecasts of its expected profitability, capital structure being, in fact, a risk–return compromise. This study contributes to the literature by investigating the drivers of capital structure of the firms from the Romanian market. For the econometric analysis, we applied multivariate fixed-effects regressions, as well as dynamic panel-data estimations (two-step system generalized method of moments, GMM) on a panel comprising the companies listed on the Bucharest Stock Exchange. The analyzed period, 2000–2016, covers a cycle with significant changes in the Romanian economy. Our results showed that leverage is positively correlated with the size of the company and the share price volatility. On the other hand, the debt structure has a different impact on corporate performance, whether this calculated on accounting measures or seen as market share price evolution.
Highlights
Capital structure remains a challenge, even if many theorists have tried to explain the debt ratio variation across companies
Large and positive long-run impact of taxation on leverage Firm age is positively correlated with the use of debt Firm age is negatively correlated with how much debt a firm uses
High dividend increases are followed by a significant increase in leverage Negative link between profitability and total debt ratio in both states
Summary
Capital structure remains a challenge, even if many theorists have tried to explain the debt ratio variation across companies. Campbell and Rogers (2018) discussed about the Corporate Finance Trilemma that occurs since companies would like to decide on their debt, cash holdings, and equity payout policies at the same time, but firms cannot. Ardalan (2018) proved that there prevails an optimal capital structure for the firm. For companies based in the major markets of United Kingdom, Germany, France, and PIIGS (Portugal, Italy, Ireland, Greece, and Spain) significant discrepancy was established in their capital structures between 2006 and 2016 (Campbell and Rogers 2018). As well, DeAngelo and Roll (2015) noticed for U.S companies, capital structure stability is the exception, not the rule
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