PROFITABILITY - CAPITAL STRUCTURE TRADE OFF: CASE OF PUBLICLY ROMANIAN COMPANIES

Abstract

There is an increasing number of empirical works that test what drives firm profitability, since it is an objective and at the same time a frame of how a company is performing. The main aim of this paper is to test capital structure, noncurrent assets ratio and tax rate as determinants for profitability, with capital structure as main focus. Using a sample of 62 publicly Romanian for period 2001-2011 and panel data model the results suggest that financial statement variables considered are significant in gauging profitability. It was concluded that there is evidence for pecking order theory and firms with large amounts of noncurrent assets are under performing.

Keywords

• profitability
• capital structure
• investment
• taxation
• financial statements