Corporate ownership and capital structure: evidence from Romania

Abstract

This study explores the relation between local and foreign corporate ownership and capital structure of Romanian listed companies (as proxied by debt ratio, short-term debt ratio, and long-term debt ratio in total assets). Our empirical analysis indicates that corporations, as shareholders of public companies, determine a reduction in the overall need of external debts of the investee firms. However, foreign corporate shareholders promote a short-term indebtedness policy of non-financial companies listed on the regulated segment of Bucharest Stock Exchange. In contrast, local corporate shareholders have a negative influence on the short-term debt of their affiliates. Our findings provide a better understanding of financing decisions of domestic entities, and consequently, may contribute to efficient investing and management decisions of business actors in Romania, and other European frontier markets.

Keywords

• foreign ownership
• debt ratios
• frontier markets
• developing economies
• Central and Eastern European countries