The Determinants of Capital Structure in Emerging Capital Markets: Evidence from Serbia

This paper explores the determinants of the capital structure of Serbian firms listed on the regulated market using panel data. We model the leverage ratio as a function of firm-specific characteristics. The findings indicate the emerging character of Serbian corporate environment. We document that Serbian firms tend to have much lower debt ratio and that they rely more heavily on short-term than long-term debt compared to firms coming from other transitional economies. The study shows that there is a significant negative impact of liquidity, tangibility, profitability and cash gap on the two debt ratios. Leverage level is significantly positively affected by the income volatility and growth opportunities of Serbian firms. Our results are consistent with the findings of previous empirical studies realized in emerging and transition economies, indicating that Serbian companies follow the modified pecking order theory.