Research on financing decision-making practices in Croatian companies

The aim of this paper is to identify the main practices of Croatian companies in financing decision-making. Following the best-known field study by Graham & Harvey (2001), this paper presents the main findings on capital structure decisions of Croatian companies. Primary data collected using a highly structured survey questionnaire through an extensive one-time cross-sectional survey conducted in 2018, was analysed primarily by descriptive analysis, after which a univariate analysis on the responses conditional on the selected companies’ characteristics was performed. According to the survey responses, practitioners report the perception of creditworthiness, financial flexibility and financial independence as the most important factors when deciding on debt financing. However, the importance of these factors is not driven by the information asymmetry problem, as the pecking order theory assumes. Furthermore, there is also a moderate support for the trade-off theory in terms of medium high proportion of companies that target their debt ratios. Yet, it should be emphasized that in the process of debt financing practitioners are concerned about the arising risks, but not the benefits of debt financing, and thus show risk-averse behaviour. As the results of empirical research deviate from the theoretical assumptions, both in this study and in similar studies conducted in the USA and Europe, it raises the questions about applicability of the existing theories and the need for their revision.