Determinants of Corporate Debt Ratios: Evidence from Manufacturing Companies Listed on the Bucharest Stock Exchange

The aim of this article is to estimate how firm-specific indicators and macroeconomic conditions affect capital structure choices and to determine whether or not the current financial crisis may have a significant impact on corporate financing decisions. The sample analyzed consists of 196 companies operating in the manufacturing industry and it refers to a period of ten years (2003-2012). To reflect the capital structure, three indicators were included in the analysis: short-term debt, long-term debt and total debt. The potential capital structure determinants considered are asset tangibility, size, profitability, liquidity, tax, business risk and interest rate. The first stage of the analysis was to obtain results from pooled-OLS model, and least square dummy variable model, that absorbs the particular effects of each company. Then fixed effect and random effect models were used and based on the Hausman test, the best model is chosen in order to run a final regression corrected for heteroskedasticity or autocorrelation problems. Results indicate that asset tangibility, profitability and liquidity have a significant negative relationship with total debt and short-term debt ratios, while tax, risk and interest rate have a positive impact on the same ratios. In order to identify the influence of financial crisis on capital structure across Romanian manufacturing companies, the sample was divided in two, before and during recession, and retested.