BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 2/2003:
The dynamics of capital structure in transition economies
Eugene Nivorozhkin ()
Abstract: This paper uses a dynamic unrestricted capital structure
model to examine the determinants of the private companies’ target
financial leverage and the speed of adjustment to it in two transition
economies, the Czech Republic and Bulgaria. We explicitly model the
adjustment of companies’ leverage to a target leverage, and this target
leverage is itself explained by a set of factors. The panel data
methodology combines cross-section and time-series information. The results
indicate that the Bulgarian corporate credit markets were less
supply-constrained than those of the Czech Republic during the period under
investigation. Bulgarian companies adjusted much faster to the target
leverage than Czech firms. The speed of adjustment related positively to
the distance between target and observed ratio for Bulgarian companies
while the relationship was neutral for Czech companies. The conservative
policies of Czech banks and the exposure control were likely responsible
for the slower adjustment among the larger companies while the opposite
were true for Bulgarian banks and companies.
Keywords: capital structure; leverage; dynamic adjustment model; the Czech Republic; Bulgaria; (follow links to similar papers)
JEL-Codes: G30; G32; O12; O52; (follow links to similar papers)
35 pages, February 4, 2003
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