Determinants of capital structure: An empirical study of companies from selected post-transition economies

The goal of this paper is to examine if there are any determinants that systematically influence the capital structure of the companies in the Balkan countries and to determine if any of the existing capital structure theories are relevant in their case. We apply a panel regression on a sample consisting of the largest and most frequently traded joint-stock companies from four countries. The results show that the larger companies and those with higher fixed asset investments exhibit higher leverage, while the more profitable companies and those with more tangible assets use less debt financing. Other variables, such as the concentration of company ownership, the riskiness of its operating profits and the effective tax rates have not been found statistically significant. These results, supported by the robustness tests, have confirmed our expectation that the managers in these countries do not set specific target leverage ratios, but instead follow a particular order in the selection of the sources of financing. In other words, the companies behave in accordance with the pecking order theory, which is a confirmation of our initial hypothesis. The governments of these countries should put more effort on stimulating the use of other sources of financing to relieve the possible excessive company dependence on the banking sector.