AN EMPIRICAL ANALYSIS OF DETERMINANT FACTORS OF THE COMPANY’S CAPITAL STRUCTURE

Abstract

According to the theory of corporate finance, optimal structuring of the company’s capital is a strategic priority having an important applied value while making decision on financial management. The study deals with an empirical analysis of the significance and degree of influence of a number of traditional determinants of financial leverage on the capital structure of domestic companies. To achieve this goal, an econometric linear model of multiple regression was built using the Gretl package; its specification was defined, and the adequacy of the model as well as the significance of parameters were tested. To obtain estimates of the linear regression model, the least squares method was used and the model was empirically tested. The selected data included panel data representing the financial parameters of eight companies of the oil and gas chemical complex of the Republic of Tatarstan over 6-year period from 2010 to 2015. Six variables were used as regressors of the model: the company’s size, the profitability of assets, the possibility of increasing the value of fixed assets and equipment, the growth of total assets, the non-debt tax shield and tangible assets. As a result of empirical testing, the hypothesis of a positive link between the level of financial leverage and the size of the firm as well as the hypothesis of inverse dependence between profitability, the possibility of growth of basic production assets and the equipment, nondebt tax shield and level of financial leverage were confirmed.The paper reveals that the non-debt tax shield has the greatest influence on the company’s capital structure. The obtained results reflecting a specific connection between the company size, possibility of growth of the main production facilities and the equipment, non-debt tax shield and level of financial leverage well agree with the provisions of compromise theory. On the other hand, the relationship between profitability and financial leverage corresponds to the theory of order.

Keywords

• company’s capital structure
• financial leverage
• capital structure determinants
• multiple linear regression
• panel data