An Analysis of the Capital Structure for Companies Listed on the Bucharest Stock Exchange

Raluca Georgiana Moscu (), Ligia Prodan () and Carmen Judith Grigorescu ()

Knowledge Horizons - Economics, 2014, vol. 6, issue 3, 114-118

Abstract: This paper employs a new database, which contains the market and accounting data from more than 50 Romanian listed companies, between 2010-2012, to document the characteristics of these firms in terms of capital structure. The study used five measures of the degree of capital structure: Debt to Equity, Debt to Total Assets, Debt to Economic Assets, Debt to Market Value, Long term Debt to Equity. The results of the analysis demonstrate that it is preferred financing from own funds. This conclusion supports the Pecking Order Theory; the highest preference is to use internal financing before resorting to any form of external funds. If a firm must use external funds, the preference is to use the following order of financing sources: short debts, long debts and equity issues. This order reflects the motivations of managers to retain control of the firm, reduce the agency costs of equity, and avoid the seemingly inevitable negative market reaction to an announcement of a new equity.

Keywords: Capital structure; trade – off theory; pecking order theory (search for similar items in EconPapers)
JEL-codes: M41 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:khe:journl:v:6:y:2014:i:3:p:114-118

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