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Modeling Elements for Correlation the Enterprise’s Capital Cost and Its Financial Structure

Author

Listed:
  • Dorin COSMA

    (Faculty of Economics and Business Administration, West University of Timisoara, Romania)

  • Anca-Ramona BOTEZAT

    (S.D.N. Arad, Romania)

Abstract

In this research paper, our attention turns to the correlation between the enterprise’s cost of capital and its financial structure, the subject having both a theoretical and a practical approach. In our opinion, the decision referring to the financial structure is based on the effect of economic arbitrage between the tax economy as a result of indebtedness and the consequence of a major debt for the solvency and the ability of the enterprise to continue its work. In analyzing the financial structure of the enterprise an important element is the financial leverage, in the same time there must be mentioned the existence of the relationship between the cost of financial debt of the enterprise and the effect of financial leverage. The last section of the research paper presents an econometric study conducted using the EViews program and the respective method Pooled IV / Two-stages EGLS, and subsequent to the regression analysis results that there is a statistically significant correlation between the considered variables, which implies that there is a correlation between the enterprises’s cost of capital and its financial structure.

Suggested Citation

  • Dorin COSMA & Anca-Ramona BOTEZAT, 2012. "Modeling Elements for Correlation the Enterprise’s Capital Cost and Its Financial Structure," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 5(17), pages 79-95.
    • Handle: RePEc:wun:journl:tje:v05:y2012:i17:a06
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    References listed on IDEAS

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    More about this item

    Keywords

    enterprise; cost of capital; financial structure; correlation;
    All these keywords.

    JEL classification:

    • 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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