Acta Univ. Agric. Silvic. Mendelianae Brun. 2013, 61(7), 2533-2546 | DOI: 10.11118/actaun201361072533

The determinants of capital structure: the evidence from the European Union

Natalia Mokhova¹, Marek Zinecker²

¹ Department of Finance, Brno University of Technology, Faculty of Business and management, 612 00 Brno, Czech Republic

² Department of Economics, Brno University of Technology, Faculty of Business and management, 612 00 Brno, Czech Republic

The aim of this study is to indicate the influence of several internal determinants on capital structure in different European countries and retrace its tendency taking into consideration the membership of the European Union. Nowadays there are a lot of debates according the future of the European Union. The recent global financial crisis and the following European debt crisis show the significance of the country financial stability and its impact on the private sector. The paper investigates 32 countries of European Union dividing them into three groups as (1) old EU members (15 countries), (2) new EU members (12 countries) and (3) EU candidates (4 candidate countries and 1 acceding country).
The managers make their financial decisions according to the source of financing and capital structure based on the macroeconomic conditions and country specifics and obviously on company's advantages and disadvantages, i.e. its internal characteristics. Based on the analysis of previous studies we have chosen several significant internal determinants of capital structure as profitability, tangibility, growth opportunities, non-debt tax shields and firm's size.
The findings show that the country's specifics, EU membership and corporate debt structure influence the relation between capital structure and its internal characteristics. The capital structure in all countries has tendency to increase, furthermore the old members rely more on debt then candidates or new members.
There is no doubt that the majority of countries support Pecking Order Theory then Trade off Theory regarding investigated relations. In most countries the profitability and size have negative and significant influence on corporate capital structure. At the same time tangibility, growth opportunities and non-debt tax shields split up: selected countries experience positive impact, another part negative, supporting different theories.

Keywords: capital structure, financial performance, European Union, determinants

Grants and funding:

This paper is supported by the Czech Science Foundation. Name of the Project: IPO Strategy - Specific Approaches in the CEE Region. Registration No. 13-38047S.

Received: April 11, 2013; Published: December 24, 2013  Show citation