Subject For any company, the capital structure choice is one of key decisions intended to strike a balance between financial stability and profitability. The article considers main determinants impacting the level of debt at different stages of life cycle of Russian public companies. Objectives The aim of the research is to evaluate the effect of internal factors on the capital structure of Russian public companies at different stages of life cycle by means of economic and mathematical modeling. Methods We use a multiple regression method enabling to identify internal factors impacting the capital structure of Russian public companies. The resulting model rests on data about companies operating in nine industries. Results The study confirmed the assumed impact of company's size and profitability of assets on the capital structure of public companies at their growth and decline stages. In addition, non-traditional determinants, such as the non-debt tax shield, liquidity ratio and business risk level turned out to be significant for the Russian market. However, the hypothesis about the importance of future growth opportunities for companies at the stage of decline was false. Conclusions and Relevance The findings will allow company managers, shareholders, potential investors and other stakeholders to monitor company's current situation and predict the implications of changes in micro economic factors on debt burden.
Keywords: capital structure, life cycle, multiple regression, non-traditional determinants
References:
Mihalca G., Antal R. An empirical investigation of the trade-off and pecking order hypotheses on Romanian market. The XIII International Conference Applied Stochastic Models and Data Analysis, Vilnius, Lithuania, 2009, pp. 109–114.
Seifert B., Gonenc H. Pecking Order Behaviour in Emerging Markets. Journal of International Financial Management and Accounting, 2010, vol. 21, no. 1, pp. 1–31.
Kim B., Suh J. Financial Life Cycle and Capital Structure. Available at: Link.
Ivashkovskaya I.V., Yangel' D.O. [Life cycle of the organization and the average growth factor]. Korporativnye finansy,2007, no. 4. (In Russ.) Available at: Link.
Scott M., Bruce R. Five Stages of Growth in Small Business. Long Range Planning, 1987, vol. 20, iss. 3, pp. 45–52.
Malmendier U., Tate G., Yan J. Overconfidence and Early-Life Experiences: The Effect of Managerial Traits on Corporate Financial Policies. The Journal of Finance, 2011, vol. 66(5), pp. 1687–1733.
Mazur K. The Determinants of Capital Structure Choice: Evidence from Polish companies. International Advances in Economic Research, 2007, vol. 13, iss. 4, pp. 495–514. doi: 10.1007/s11294-007-9114-y
Gungoraydinoglu A., Öztekin Ö. Firm- and Country-Level Determinants of Corporate Leverage: Some new international evidence. Journal of Corporate Finance, 2011, vol. 17, pp. 1457–1474. doi: 10.1016/j.jcorpfin.2011.08.004
Beverland M., Lockshin L.S. Organizational Life Cycles in Small New Zealand Wineries. Journal of Small Business Management, 2001, vol. 39, no. 4, pp. 354–362.
Dickinson V. Cash Flow Patterns as a Proxy for Firm Life Cycle. The Accounting Review, 2011, vol. 86, no. 6, pp. 1969–1994.
Booth L., Aivazian V., Demirguc-Kunt A., Maksimovic V. Capital Structures in Developing Countries. The Journal of Finance, 2001, vol. 56, iss. 1, pp. 87–130.
Delcoure N. The Determinants of Capital Structure in Transitional Economies. International Review of Economics and Finance, 2007, vol. 16, no. 3, pp. 400–415. doi: 10.1016/j.iref.2005.03.005
Castro P., Tascon T., Amor-Tapia B. The Role of Life Cycle on Capital Structure. Available at: Link.
Frank M., Goyal V. Capital Structure Decisions: Which Factors Are Reliably Important. Financial Management, 2009, vol. 38, no. 1, pp. 1–37.
Frank M., Goyal V. Testing the Pecking Order Theory of Capital Structure. Journal of Financial Economics, 2003, vol. 67, pp. 217–248.
Hovakimian A., Opler T., Titman Sh. The Debt-Equity Choice. Journal of Financial and Quantitative Analysis, 2001, vol. 36, iss. 01, pp. 1–24.
Ivanov I. Capital Structure Determinants of Russian Public Companies. Korporativnye finansy,2010, no. 1, pp. 5–38. Available at: Link.
Anthony J., Ramesh K. Association Between Accounting Performance Measures and Stock Prices. A test of the life cycle hypothesis. Journal of Accounting and Economics, 1992, vol. 15, no. 2-3, pp. 203–227.
