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The Capital Structure Management in Companies of Selected Business Branches of Building in Conditions of the Czech Republic

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  • Růčková Petra
  • Heryán Tomáš

Abstract

Current paper has focused on the capital structure management theories. The theoretical part of the study firstly highlights the differences between trade-off theories and pecking order theories. In the empirical part there are then proved some significant relationships between financial indicators (debt/equity ratio and return on equity) of homogenous data sample from the Czech branch of building area. The aim of the study is to prove the differences between the capital structure development that are based on the type of the Czech companies' ownership in the selected NACE industrial branch and to point out some other particularities. The contribution of the paper is a comparison of the theory as well as practice of this issue in the Czech Republic. For pooled sample there are used selected financial indicators of 57 building companies, all with turnover of more than CZK 1.5 billion. The choice of this criterion was a result of a change in efficiency in Czech economy observed in the selected period. We can assume that this factor will have low influence on the selection of financial resources of large corporations. We may even say that for large companies the availability of financial resources remain unchanged. We have obtained annual data from 2004 to 2011. Due to such short estimation period, but the width of pooled sample on the other hand, it is used generalized method of moments (GMM) panel regression. There are also arguments of motivation to analyse business branch of building specifically. Moreover, an analysis is split according to ownership of companies into two categories, for the Czech and foreign owners. Based on the recent literature there has been made and tested three hypotheses. Results of the article have clearly proved the separation of managers from owner's positions. On the top of that, domestic companies are not pushed to distribute the realized profit so much as foreign owners that prefer the return of their means invested into business. There is also a suggestion of future interests in research focused on other Czech business branches, too.

Suggested Citation

  • Růčková Petra & Heryán Tomáš, 2015. "The Capital Structure Management in Companies of Selected Business Branches of Building in Conditions of the Czech Republic," Prague Economic Papers, Prague University of Economics and Business, vol. 2015(6), pages 699-714.
    • Handle: RePEc:prg:jnlpep:v:2015:y:2015:i:6:id:515:p:699-714
    DOI: 10.18267/j.pep.515
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    References listed on IDEAS

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    1. Péter Hernádi & Mihály Ormos, 2012. "What managers think of capital structure and how they act: Evidence from Central and Eastern Europe," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(2), pages 47-71, December.
    2. de Haas, Ralph & van Lelyveld, Iman, 2010. "Internal capital markets and lending by multinational bank subsidiaries," Journal of Financial Intermediation, Elsevier, vol. 19(1), pages 1-25, January.
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    4. Frank, Murray Z. & Goyal, Vidhan K., 2003. "Testing the pecking order theory of capital structure," Journal of Financial Economics, Elsevier, vol. 67(2), pages 217-248, February.
    5. Sabiwalsky, Ralf, 2010. "Nonlinear modelling of target leverage with latent determinant variables -- new evidence on the trade-off theory," Review of Financial Economics, Elsevier, vol. 19(4), pages 137-150, October.
    6. repec:dau:papers:123456789/11260 is not listed on IDEAS
    7. repec:bla:jfinan:v:43:y:1988:i:1:p:1-19 is not listed on IDEAS
    8. Chen, Dar-Hsin & Chen, Chun-Da & Chen, Jianguo & Huang, Yu-Fang, 2013. "Panel data analyses of the pecking order theory and the market timing theory of capital structure in Taiwan," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 1-13.
    9. de La Bruslerie, Hubert & Latrous, Imen, 2012. "Ownership structure and debt leverage: Empirical test of a trade-off hypothesis on French firms," Journal of Multinational Financial Management, Elsevier, vol. 22(4), pages 111-130.
    10. de Jong, Abe & Verbeek, Marno & Verwijmeren, Patrick, 2011. "Firms' debt-equity decisions when the static tradeoff theory and the pecking order theory disagree," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1303-1314, May.
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    More about this item

    Keywords

    return on equity; GMM panel regression; domestic and foreign owners; debt/equity ratio; capital structure;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • 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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