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Capital Structure And Financial Performance. A Study On Real Estate Sector In Romania

Author

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  • CRĂCIUN (TIMOFEI) Ioana

    (Doctoral School of Economic Sciences, Faculty of Economic Sciences, University of Oradea, Oradea, Romania)

Abstract

Like in other countries, the real estate sector of Romania have been hit hard by the 2008-2009 financial crisis. The resumption of lending activity was the main factor that contributed to the relaunch of the real estate sector. The possibility of choosing from internal and external sources of financing, plays an important role in maximizing the value of the company, with a direct impact on company’s performance. In this context, this research contributes to the ongoing discussion on the relationship between capital structure and performance of the companies. For this research were tested 20 companies listed on Bucharest Stock Exchange, in the field of real estate transactions, using panel data regression technique over the period of 2009-2018, with fixed and random effects models. The resulting model was the one with random effects, being a better representation of the data used. Capital structure, the independent variable is measured by the Overall Debt Rate and the Financial Stability Rate, while the performance, the dependent variable, is measured by the company’s Return on Equity (ROE) and Return on Assets (ROA). The results showed a positive impact from the Financial Stability Rate on ROA and ROE, while the Overall Debt Rate has a negative one, suggesting that an increase in the firm’s debt level would negatively affect its shareholders return. Most of the companies analysed present a low level of Overall Debt Rate which reflects the financial autonomy. At the same time, they have a high level of Financial Stability Rate. We interpreted this results as a strong point, because these companies faces a low risk of insolvency and, perhaps, therefore are preferred by investors who have an aversion to risk. However, whether capital structure of companies will influence their performance or not, is a topic that remains unexplored. Even so, results from past studies seemed to be varying and contradicting in some cases.

Suggested Citation

  • CRĂCIUN (TIMOFEI) Ioana, 2020. "Capital Structure And Financial Performance. A Study On Real Estate Sector In Romania," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 199-208, July.
    • Handle: RePEc:ora:journl:v:1:y:2020:i:1:p:199-208
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    References listed on IDEAS

    as
    1. Yildirim, Ramazan & Masih, Mansur & Bacha, Obiyathulla Ismath, 2018. "Determinants of capital structure: evidence from Shari'ah compliant and non-compliant firms," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 198-219.
    2. Hariem Abdullah & Turgut Tursoy, 2021. "Capital structure and firm performance: evidence of Germany under IFRS adoption," Review of Managerial Science, Springer, vol. 15(2), pages 379-398, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    ROA; ROE; Overall Debt Rate; Financial Stability Rate; real estate;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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