The Determinants of Capital Structure: Evidence from Russia

Abstract

This study aims to identify the capital structure determinants of the listed Russian firms. In addition, this article reviews the current capital structure theories and how they can be applied to the decision-making processes for choosing a capital structure. The determinants are the factors that would affect a firm’s financial leverage. The study was based on a sample of 48 publicly traded non-financial firms with the same financial reporting standards over the period of 2009–2015. The final data set excludes firms with missing data for the selected variables of any year and firms with outliers. The following variables were selected to determine the factors that would influence a firm’s capital structure: business risk, profitability, firm size, growth opportunities, growth opportunities, tangibility, uniqueness, average tax rate, non-debt tax shields, industry mean leverage, stock market return, average lending rate and inflation rate. The random-effects model was employed for estimations while the OLS approach was used to measure the impact of industry on capital structure. It was found that the most significant capital structure determinants of Russian firms are industry mean leverage, firm size with a positive effect and growth opportunities with a negative one. Profitability, non-debt tax shields and stock market conditions with a negative impact were less important. The determinants which were concluded to be irrelevant were business risk, growth opportunity measured as capital expenditures to total assets, tangibility of assets, uniqueness of assets, average tax rate, the industry group of Energy firms, lending, and inflation rates. Another finding was that the Oil & Gas and Metal firms tended to have a lower debt level compared to firms from other industries.

Keywords

• capital structure
• leverage
• capital structure determinants
• panel data analysis
• ols