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Statistical Analysis of Causality between Capital Structure and Firm Profitability: Evidence from Bosnia and Herzegovina

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  • Resić Emina

    (School of Economics and Business, University of Sarajevo, Sarajevo, Bosnia and Herzegovina)

  • Mangafić Jasmina

    (School of Economics and Business, University of Sarajevo, Sarajevo, Bosnia and Herzegovina)

  • Perić Tunjo

    (Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia)

Abstract

This research is designed to examine the relationship between the capital structure and profitability of non-financial firms in Bosnia and Herzegovina during the ten years period, from 2003-2012. The goal is to prove the existence of the relationship between the firm’s capital structure choice and its profitability. The analysis is extended by including the debt structure and differentiating between the types of debt such as the long-term and the short-term ones. Canonical correlation and multiple regression analysis are used. The results of the multivariate canonical correlation analysis provide support to a hypothesis that the capital structure and profitability have statistically significant relationships. Furthermore, the findings provide support that firms develop different patterns of profitability depending on the capital structure choice. We found that an increasing proportion of short-term debt and long-term debt in the overall liability of the firm reduces its profitability.

Suggested Citation

  • Resić Emina & Mangafić Jasmina & Perić Tunjo, 2015. "Statistical Analysis of Causality between Capital Structure and Firm Profitability: Evidence from Bosnia and Herzegovina," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 1(1-2), pages 1-11, December.
    • Handle: RePEc:vrs:crebss:v:1:y:2015:i:1-2:p:1-11:n:1
    DOI: 10.1515/crebss-2016-0001
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    References listed on IDEAS

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    2. Stewart C. Myers, 2001. "Capital Structure," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 81-102, Spring.
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    More about this item

    Keywords

    capital structure; profitability; debt level; multivariate canonical correlation; multiple regression;
    All these keywords.

    JEL classification:

    • C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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