CORPORATE VALUE AND CAPITAL STRUCTURE: A CASE OF CROATIAN, SLOVENIAN AND CZECH LISTED COMPANIES

Abstract

This paper aims to explore the capital structure issue and corporate value and to investigate the effect of capital structure change on corporate value. Panel data regression was applied in the research. The empirical results show that all proxies of capital structure have a positive but not significant influence on the Sustainable Owners Value Added Ratio (SOVAR) as a performance proxy for joint-stock companies whose financial instruments are listed on the capital market in Croatia. The study indicates that the owners’ equity has a negative and significant influence on the value of joint-stock companies in Slovenia while the long-term debt has a positive and significant impact on the value of listed joint-stock companies in the Czech Republic. Future work is needed to extend the analysis across different countries in the European Union and a long time series of data. Although investments are the most significant determinants of corporate value, the results indicate that 29.53% variability of the corporate value is explained by the variables owners’ equity and long-term debt which represent capital structure. These results provide evidence that the capital structure decisions affect corporate value as well as capital structure is relevant for corporate value in the selected members of European Union.

Keywords

• capital structure
• owners’ equity
• retained earnings
• long-term liabilities
• corporate value.