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The dynamics of capital structure in transition economies


  • Eugene Nivorozhkin

    (Department of economics, Gothenburg University)


This paper uses a dynamic unrestricted capital structure model to examine the determinants of the private companies’ target financial leverage and the speed of adjustment to it in two transition economies, the Czech Republic and Bulgaria. We explicitly model the adjustment of companies’ leverage to a target leverage, and this target leverage is itself explained by a set of factors. The panel data methodology combines cross-section and time-series information. The results indicate that the Bulgarian corporate credit markets were less supply-constrained than those of the Czech Republic during the period under investigation. Bulgarian companies adjusted much faster to the target leverage than Czech firms. The speed of adjustment related positively to the distance between target and observed ratio for Bulgarian companies while the relationship was neutral for Czech companies. The conservative policies of Czech banks and the exposure control were likely responsible for the slower adjustment among the larger companies while the opposite were true for Bulgarian banks and companies.

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  • Eugene Nivorozhkin, 2003. "The dynamics of capital structure in transition economies," Macroeconomics 0303005, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0303005 Note: Type of Document - pdf; prepared on IBM PC ; to print on HP/PostScript/Franciscan monk; pages: 35 ; figures: included

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    References listed on IDEAS

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    Cited by:

    1. Nivorozhkin, Eugene, 2004. "Financing choices of firms in EU accession countiries," BOFIT Discussion Papers 6/2004, Bank of Finland, Institute for Economies in Transition.
    2. Delcoure, Natalya, 2007. "The determinants of capital structure in transitional economies," International Review of Economics & Finance, Elsevier, vol. 16(3), pages 400-415.
    3. R.T.A. de Haas & H.M.M. Peeters, 2004. "Firms' dynamic adjustment to target capital structures in transition economies," WO Research Memoranda (discontinued) 761, Netherlands Central Bank, Research Department.
    4. Morar Triandafil, Cristina & Poanta, Dorina, 2011. "Central and East European Corporate Finance: Between Commonality and Heterogeneity," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 132-161, September.
    5. Nivorozhkin, Eugene, 2004. "Financing Choices of Firms in EU Accession Countries," Ratio Working Papers 33, The Ratio Institute.
    6. Simonovska, Ana & Gjosevski, Dragan & Campos, Monica, 2012. "Capital Structure And Financial Performance Of Agricultural Companies – Evidences From The Macedonian Agricultural Sector In Transition," 132nd Seminar, October 25-27, 2012, Skopje, Republic of Macedonia 139501, European Association of Agricultural Economists.

    More about this item


    capital structure; leverage; dynamic adjustment model; the Czech Republic; Bulgaria;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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