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The impact of liquidity on the capital structure: a case study of Croatian firms


  • Šarlija Nataša

    (Faculty of Economics, J.J. Strossmayer University of Osijek, Osijek, Croatia)

  • Harc Martina

    (Institute for Scientific and Art Research Work, Croatian Academy of Science and Art, Osijek, Croatia)


Background: Previous studies have shown that in some countries, liquid assets increased leverage while in other countries liquid firms were more frequently financed by their own capital and therefore were less leveraged. Objectives: The aim of this paper is to investigate the impact of liquidity on the capital structure of Croatian firms. Methods/Approach: Pearson correlation coefficient is applied to the test on the relationship between liquidity ratios and debt ratios, the share of retained earnings to capital and liquidity ratios and the relationship between the structure of current assets and leverage. Results: A survey has been conducted on a sample of 1058 Croatian firms. There are statistically significant correlations between liquidity ratios and leverage ratios. Also, there are statistically significant correlations between leverage ratios and the structure of current assets. The relationship between liquidity ratios and the short-term leverage is stronger than between liquidity ratios and the long-term leverage. Conclusions: The more liquid assets firms have, the less they are leveraged. Long-term leveraged firms are more liquid. Increasing inventory levels leads to an increase in leverage. Furthermore, increasing the cash in current assets leads to a reduction in the short-term and the long-term leverage.

Suggested Citation

  • Šarlija Nataša & Harc Martina, 2012. "The impact of liquidity on the capital structure: a case study of Croatian firms," Business Systems Research, Sciendo, vol. 3(1), pages 30-36, June.
  • Handle: RePEc:bit:bsrysr:v:3:y:2012:i:1:p:30-36

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    References listed on IDEAS

    1. Akdal, Sinan, 2010. "How do Firm Characteristics Affect Capital Structure? Some UK Evidence.," MPRA Paper 29657, University Library of Munich, Germany, revised 01 Nov 2010.
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    Cited by:

    1. Memić Deni & Škaljić-Memić Selma, 2013. "Performance Analysis and Benchmarking of Commercial Banks Operating in Bosnia and Herzegovina: a DEA Approach," Business Systems Research, Sciendo, vol. 4(2), pages 17-37, December.
    2. Ibrahim Danjuma & Mohammed Sangiru Umar & Dahiru Dauda Hammawa, 2015. "Mediating Effects of Cash Management in Relationship between Capital Structure and Liquidity in Small and Medium Enterprises," International Journal of Economics and Financial Issues, Econjournals, vol. 5(4), pages 995-1000.
    3. ElBannan, Mona A., 2017. "Stock market liquidity, family ownership, and capital structure choices in an emerging country," Emerging Markets Review, Elsevier, vol. 33(C), pages 201-231.
    4. Maziar Ghasemi & Nazrul Hisyam Ab Razak, 2016. "The Impact of Liquidity on the Capital Structure: Evidence from Malaysia," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(10), pages 130-139, October.
    5. Ksenija Denčić-Mihajlov & Dejan Malinić & Konrad Grabiński, 2015. "Capital structure and liquidity during the financial crisis in Serbia: implications for the sustainability of the economy," Post-Communist Economies, Taylor & Francis Journals, vol. 27(1), pages 91-105, March.
    6. Dejan Malinić & Ksenija DenÄ ić-Mihajlov & Ema Ljubenović, 2013. "The Determinants of Capital Structure in Emerging Capital Markets: Evidence from Serbia," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 98-119.
    7. Osaretin Kayode Omoregie & Sodik Adejonwo Olofin & Fredrick Ikpesu, 2019. "Capital Structure and the Profitability-Liquidity Trade-off," International Journal of Economics and Financial Issues, Econjournals, vol. 9(3), pages 105-115.
    8. Markéta Šeligová, 2017. "The Effect of Selected Financial Indicators on Liquidity of Companies in Selected Sectors in the Czech Republic," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 65(6), pages 2095-2104.
    9. Abdul-Azeez Adeniyi Alao & Wasiu Abiodun Sanyaolu, 2020. "Effect of Leverage on the Profitability of Nigerian Consumer Goods Manufacturing Firms," Izvestiya, Varna University of Economics, issue 1, pages 5-25.
    10. Rana El Bahsh & Ali Alattar & Aziz N. Yusuf, 2018. "Firm, Industry and Country Level Determinants of Capital Structure: Evidence from Jordan," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 175-190.
    11. Ahmad Fawad, 2013. "Corruption and Information Sharing as Determinants of Non-Performing Loans," Business Systems Research, Sciendo, vol. 4(1), pages 87-98, March.
    12. Siti Nurlaela & Bambang Mursito & Eny Kustiyah & Istiqomah & Sri Hartono, 2019. "Asset Turnover, Capital Structure and Financial Performance Consumption Industry Company in Indonesia Stock Exchange," International Journal of Economics and Financial Issues, Econjournals, vol. 9(3), pages 297-301.

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    liquidity; capital structure; leverage;


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