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The Impact Of Capital Structure And Pecking Order Theory On Corporate Liquidity

Author

Listed:
  • Eleonora Kontus

    (The city of Kastav)

  • Natasa Sarlija

    (J. J. Strossmayer University of Osijek)

Abstract

Corporations face the same basic financing problem of how to fund the investment projects which they need to grow and prosper. The aim of the empirical research is to investigate the impact of capital structure on the liquidity of listed companies, whose financial instruments are listed on the capital market, and to examine the pecking order phenomenon. The empirical research is conducted on a sample of Croatian, Slovenian and Czech joint stock companies, and the panel multiple linear regression and correlation analysis are applied in the research. The findings suggest that the retained earnings to capital ratio have a statistically significant impact on the liquidity of listed companies in the Republic of Slovenia and the Czech Republic. In addition, the study indicates that the pecking order phenomenon is consistent with the listed companies in the Republic of Croatia and the Republic of Slovenia which prefer internal, i.e. financing from retained earnings, to external financing. By selecting the components of the capital structure, increasing the retained earnings ratio and following the pecking order theory of capital structure, the listed companies can maintain and improve their liquidity.

Suggested Citation

  • Eleonora Kontus & Natasa Sarlija, 2019. "The Impact Of Capital Structure And Pecking Order Theory On Corporate Liquidity," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 28(2), pages 655-679, december.
    • Handle: RePEc:avo:emipdu:v:28:y:2019:i:2:p:655-679
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    More about this item

    Keywords

    liquidity; capital structure; equity; retained earnings; long-term debt; pecking order phenomenon;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • 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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