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The Impact of Capital Structure on Risk and Firm Performance: Empirical Evidence for the Bucharest Stock Exchange Listed Companies

Author

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  • Elena Alexandra Nenu

    () (Department of Finance, The Bucharest University of Economic Studies, 6 Piata Romana, 010374 Bucharest, Romania)

  • Georgeta Vintilă

    () (Department of Finance, The Bucharest University of Economic Studies, 6 Piata Romana, 010374 Bucharest, Romania)

  • Ştefan Cristian Gherghina

    () (Department of Finance, The Bucharest University of Economic Studies, 6 Piata Romana, 010374 Bucharest, Romania)

Abstract

This paper analyzes the evolution of the main theories regarding the capital structure and the related impact on risk and corporate performance. The capital structure is a dynamic process that changes over time, depending on the variables that influence the overall evolution of the economy, a particular sector, or a company. It may also change depending on the company’s forecasts of its expected profitability, capital structure being, in fact, a risk–return compromise. This study contributes to the literature by investigating the drivers of capital structure of the firms from the Romanian market. For the econometric analysis, we applied multivariate fixed-effects regressions, as well as dynamic panel-data estimations (two-step system generalized method of moments, GMM) on a panel comprising the companies listed on the Bucharest Stock Exchange. The analyzed period, 2000–2016, covers a cycle with significant changes in the Romanian economy. Our results showed that leverage is positively correlated with the size of the company and the share price volatility. On the other hand, the debt structure has a different impact on corporate performance, whether this calculated on accounting measures or seen as market share price evolution.

Suggested Citation

  • Elena Alexandra Nenu & Georgeta Vintilă & Ştefan Cristian Gherghina, 2018. "The Impact of Capital Structure on Risk and Firm Performance: Empirical Evidence for the Bucharest Stock Exchange Listed Companies," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 6(2), pages 1-29, April.
  • Handle: RePEc:gam:jijfss:v:6:y:2018:i:2:p:41-:d:140401
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    More about this item

    Keywords

    capital structure; leverage; bankruptcy risk; corporate performance; fixed-effects regressions; two-step system GMM; emerging countries;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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