Abstract
Seeking for the optimal capital structure lasts for more than 50 years and still is very topical, especially during the market turmoil as it happened in 2008. No perfect answer is yet provided to the question of how large debt amount should be kept on the accounts. The main objective of the present paper is to analyze the impact of capital structure decisions on the equity performance and on the profitability of the companies located in Baltics. The study covered the time period of 4 years (from 2007 till 2010) and the sample data of 36 “blue-chip” companies listed on the Baltic Stock exchanges. The results of the study discover positive relationship between stock performance and sufficiency of equity capital. Besides, there was found an inverse relationship between the level of debt and capital profitability confirming the pecking order theory that in the best case the company should use self-generated funds. Santrauka Optimalios kapitalo struktūros siekiama daugiau nei 50 metų ir tai vis dar yra labai aktualu, ypač per finansų krizę, įvykusią 2008 m. Kol kas nėra gauta galutinio atsakymo į klausimą – kokio dydžio skola turi būti laikoma sąskaitose. Pagrindinis šio straipsnio tikslas – išnagrinėti kapitalo struktūros sprendimų įtaką akcijų rinkai ir Baltijos šalių įmonių pelningumui. Tyrimas apėmė ketverių metų laikotarpį (nuo 2007 m. iki 2010 m.) ir 36 patikimiausių akcijų ,,blue chips“ duomenų, įtrauktų į Baltijos vertybinių popierių biržų sąrašus, pavyzdžius. Atlikus tyrimą nustatytas teigiamas ryšys tarp akcijų ir akcinio kapitalo pakankamumo. Be to, buvo nustatytas atvirkštinis ryšys tarp skolos lygio ir kapitalo pelningumo, patvirtinančio kapojimo kvotos teoriją, kad geriausiu atveju kompanija panaudos savo sukuriamus išteklius.
Highlights
The decision of target capital structure is one of the most difficult in enterprise management as there is always a dilemma between corporate profitability, which is offered by fiscal benefit, and the risk, which is faced when the share of debt in total assets starts to prevail over equity
Where: ROE is equity capital profitability, which is measured as net profit divided by equity; DE is total debt divided by equity; NDE is net debt, which is total debt minus cash, divided by equity; SE is sufficiency of equity capital index which is measured as equity divided by sufficient equity and multiplied by 100
Before checking the hypotheses stated in the introduction, it is worth having a general look at the quality of balance sheet of Baltic stock exchange listed companies
Summary
The decision of target capital structure is one of the most difficult in enterprise management as there is always a dilemma between corporate profitability, which is offered by fiscal benefit, and the risk, which is faced when the share of debt in total assets starts to prevail over equity. This becomes especially sensitive in the uncertain market conditions, e.g. during downcycles of the economy. Banks are likely to be more reluctant to lend to firms in difficulty. This is reinforced when the banks are in lack of liquidity themselves. The companies in need for external financing face increased risk
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