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The Determinants of Capital Structure Choice: Evidence from Polish Companies

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Abstract

The main objective of this paper is to investigate which of the two competing capital structure theories – the pecking order of financing choices or the traditional static trade-off model – better describes the financing decisions in Polish companies traded on the Warsaw Stock Exchange (WSE). The data come from financial statements of the companies and cover a 5-year period, 2000–2004. First, a correlation is run in order to separate a set of significant factors influencing the capital structure from the list of the following independent variables: assets structure, profitability, growth opportunities, liquidity, firm size, product uniqueness, earnings volatility, non-debt tax shields, dividend policy, and the effective tax rate. Next, in order to test the relationship between capital structure and its potential determinants, multiple regression is run. The evidence generally suggests the relevance of the pecking order hypothesis in explaining the financing choices of Polish firms.

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Notes

  1. Two extensive overviews of capital structure theories in Polish include: Gajdka (2002) and Jerzemowska (1999).

  2. MacKie-Mason (1990) and Helwege and Liang (1996) suggest additional measure of default risk, mainly Altman’s Z-score. The author has tried to measure risk with the Z-score, but calculated according to the formula suggested by Hołda (2001), which is believed to better fit Polish economic conditions. This factor, however, was strongly correlated with liquidity and finally excluded from further analysis.

  3. The only exception was the size variable (SIZ_2) which was included at the significance level of 0.06.

  4. Negative sign was also obtained by Frank and Goyal (2004), who stress the misspecification of the pecking order theory concerning dividend policy.

  5. But the argument to explain it may be that their measure of capital structure was long-term debt to assets.

  6. The value of the condition index from 10 to 30 would indicate the existence of moderate to strong multicolinearity, and severe colinearity is observed when the index exceeds 30.

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Authors and Affiliations

  1. University of Applied Sciences, Johannes Gutenberg-Strasse 3, 2700, Wiener Neustadt, Austria

    Kinga Mazur

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  1. Kinga Mazur
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Correspondence to Kinga Mazur.

Appendix

Appendix

Table A1 Explanatory variables: descriptive statistics
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Table A2 Correlation matrix
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Table A3 Descriptive statistics: sample split according to firm size, profitability, and dividend policy
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Mazur, K. The Determinants of Capital Structure Choice: Evidence from Polish Companies. Int Adv Econ Res 13, 495–514 (2007). https://doi.org/10.1007/s11294-007-9114-y

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