Modeling Elements for Correlation the Enterprise’s Capital Cost and Its Financial Structure

Dorin Cosma and Anca-Ramona Botezat
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Dorin Cosma: Faculty of Economics and Business Administration, West University of Timisoara, Romania
Anca-Ramona Botezat: S.D.N. Arad, Romania

Timisoara Journal of Economics, 2012, vol. 5, issue 17, 79–95

Abstract: In this research paper, our attention turns to the correlation between the enterprise’s cost of capital and its financial structure, the subject having both a theoretical and a practical approach. In our opinion, the decision referring to the financial structure is based on the effect of economic arbitrage between the tax economy as a result of indebtedness and the consequence of a major debt for the solvency and the ability of the enterprise to continue its work. In analyzing the financial structure of the enterprise an important element is the financial leverage, in the same time there must be mentioned the existence of the relationship between the cost of financial debt of the enterprise and the effect of financial leverage. The last section of the research paper presents an econometric study conducted using the EViews program and the respective method Pooled IV / Two-stages EGLS, and subsequent to the regression analysis results that there is a statistically significant correlation between the considered variables, which implies that there is a correlation between the enterprises’s cost of capital and its financial structure.

Keywords: enterprise; cost of capital; financial structure; correlation (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2012
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