THE IMPACT OF CAPITAL STRUCTURE AND PECKING ORDER THEORY ON CORPORATE LIQUIDITY

Eleonora Kontus () and Natasa Sarlija ()
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Eleonora Kontus: The city of Kastav
Natasa Sarlija: J. J. Strossmayer University of Osijek

Economic Thought and Practice, 2019, vol. 28, issue 2, 655-679

Abstract: Corporations face the same basic financing problem of how to fund the investment projects which they need to grow and prosper. The aim of the empirical research is to investigate the impact of capital structure on the liquidity of listed companies, whose financial instruments are listed on the capital market, and to examine the pecking order phenomenon. The empirical research is conducted on a sample of Croatian, Slovenian and Czech joint stock companies, and the panel multiple linear regression and correlation analysis are applied in the research. The findings suggest that the retained earnings to capital ratio have a statistically significant impact on the liquidity of listed companies in the Republic of Slovenia and the Czech Republic. In addition, the study indicates that the pecking order phenomenon is consistent with the listed companies in the Republic of Croatia and the Republic of Slovenia which prefer internal, i.e. financing from retained earnings, to external financing. By selecting the components of the capital structure, increasing the retained earnings ratio and following the pecking order theory of capital structure, the listed companies can maintain and improve their liquidity.

Keywords: liquidity; capital structure; equity; retained earnings; long-term debt; pecking order phenomenon (search for similar items in EconPapers)
JEL-codes: C30 G32 (search for similar items in EconPapers)
Date: 2019
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