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The Dynamics of Capital Structure in Transition Economies

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  • Eugene Nivorozhkin
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    Abstract

    This paper uses a dynamic unrestricted capital structure model to examine the determinants of the private companies' target financial leverage and the speed of adjustment to it in two transition economies, the Czech Republic and Bulgaria. We explicitly model the adjustment of companies' leverage to a target leverage, and this target leverage is itself explained by a set of factors. The panel data methodology combines cross-section and time-series information. The results indicate that the Bulgarian corporate credit markets were less supply -constrained than those of the Czech Republic during the period under investigation. Bulgarian␣companies adjusted much faster to the target leverage than Czech firms. The speed of␣adjustment related positively to the distance between target and observed ratio for Bulgarian companies while the relationship was neutral for Czech companies. The conservative policies of Czech banks and the exposure control were likely responsible for the slower adjustment among the larger companies while the opposite were true for Bulgarian banks and companies. Copyright Kluwer Academic Publishers 2004

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    File URL: http://hdl.handle.net/10.1007/s10644-004-1056-2
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    Bibliographic Info

    Article provided by Springer in its journal Economics of Planning.

    Volume (Year): 37 (2004)
    Issue (Month): 1 (March)
    Pages: 25-45

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    Handle: RePEc:kap:ecopln:v:37:y:2004:i:1:p:25-45

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    Web page: http://www.springerlink.com/link.asp?id=113294

    Related research

    Keywords: Bulgaria; capital structure; Czech Republic; dynamic adjustment model; leverage;

    References

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    1. Hovakimian, Armen & Opler, Tim & Titman, Sheridan, 2001. "The Debt-Equity Choice," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(01), pages 1-24, March.
    2. Rajan, Raghuram G & Zingales, Luigi, 1995. " What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-60, December.
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    4. Guedes, Jose & Opler, Tim, 1996. " The Determinants of the Maturity of Corporate Debt Issues," Journal of Finance, American Finance Association, vol. 51(5), pages 1809-33, December.
    5. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
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    9. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
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    11. Qaizar Hussain & Eugeniy Nivorozhkin, 1997. "The Capital Structure of Listed Companies in Poland," IMF Working Papers 97/175, International Monetary Fund.
    12. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    13. Banerjee, Saugata & Heshmati, Almas & Wihlborg, Clas, 1999. "The Dynamics of Capital Structure," Working Paper Series in Economics and Finance 333, Stockholm School of Economics, revised 12 May 2000.
    14. Stewart C. Myers, 1989. "Still searching for optimal capital structure," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 80-105.
    15. Titman, Sheridan, 1984. "The effect of capital structure on a firm's liquidation decision," Journal of Financial Economics, Elsevier, vol. 13(1), pages 137-151, March.
    16. Cornelli, Francesca & Portes, Richard & Schaffer, Mark E, 1996. "The Capital Structure of Firms in Central and Eastern Europe," CEPR Discussion Papers 1392, C.E.P.R. Discussion Papers.
    17. Ang, James S., 1976. "The Intertemporal Behavior of Corporate Debt Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 11(04), pages 555-566, November.
    18. Fischer, Edwin O & Heinkel, Robert & Zechner, Josef, 1989. " Dynamic Capital Structure Choice: Theory and Tests," Journal of Finance, American Finance Association, vol. 44(1), pages 19-40, March.
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    Cited by:
    1. Péter Hernádi & Mihály Ormos, 2012. "What managers think of capital structure and how they act: Evidence from Central and Eastern Europe," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(2), pages 47-71, December.
    2. Nivorozhkin, Eugene, 2005. "Financing choices of firms in EU accession countries," Emerging Markets Review, Elsevier, vol. 6(2), pages 138-169, June.
    3. Andreas Stephan & Oleksandr Talavera & Andriy Tsapin, 2010. "Corporate Debt Maturity Choice in Emerging Financial Markets," University of East Anglia Applied and Financial Economics Working Paper Series 010, School of Economics, University of East Anglia, Norwich, UK..

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