Capital Structure and Firm Performance: The Case of Central and Eastern European Economies
Capital Structure and Firm Performance: The Case of Central and Eastern European Economies
Author(s): Gabriela Brendea, Loredana Mihalca, Fănuța PopSubject(s): Economic policy, Political economy, Financial Markets, Fiscal Politics / Budgeting
Published by: Ekonomický ústav SAV a Prognostický ústav SAV
Keywords: capital structure; debt ratio; franchise-value hypothesis; efficiency-risk hypothesis; firm performance; agency costs; CEE countries;
Summary/Abstract: The current study examines the relationship between capital structure and firm performance for a sample of non-financial firms from eight Central and Eastern European countries in the period 2008 – 2017. Based on the agency costs hypothesis, we investigate whether debt ratio as a proxy for capital structure has a positive relationship with firm performance for the countries included in the sample. The results indicate a negative relationship between these variables and, thus, they did not support the agency costs hypothesis. In addition, we test the reverse causality from performance to capital structure based on two opposite hypotheses, that is, the efficiency-risk and the franchise-value hypothesis. The results support the franchise-value hypothesis, indicating a negative relationship between debt ratio and firm performance.
Journal: Ekonomický časopis
- Issue Year: 70/2022
- Issue No: 05
- Page Range: 430-449
- Page Count: 20
- Language: English