The determinants of capital structure in transitional economies |
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| Institution: | 1. UAE University, College of Business & Economics, United Arab Emirates;2. University of Plymouth, Plymouth, Graduate School of Management & Plymouth Business School, United Kingdom;1. University of Brighton, Brighton Business School, United Kingdom;2. National and Kapodistrian University of Athens, Department of Economics, Greece;1. UPSITE Consulting S.P.C, The Lagoon, Amwaj Island, Muharraq, Bahrain;2. Professor of Finance and Econometrics, INCEIF, Lorong Universiti A, 59100 Kuala Lumpur, Malaysia;3. INCEIF, Lorong Universiti A, 59100 Kuala Lumpur, Malaysia |
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| Abstract: | This study investigates whether capital structure determinants in emerging Central and Eastern European (CEE) countries support traditional capital structure theory developed to explain western economies. The empirical evidence suggests that some traditional capital structure theories are portable to companies in CEE countries. However, neither the trade-off, pecking order, nor agency costs theories explain the capital structure choices. Companies do follow the modified “pecking order.” The factors that influence firms' leverage decisions are the differences and financial constraints of banking systems, disparity in legal systems governing firms' operations, shareholders, and bondholders rights protection, sophistication of equity and bond markets, and corporate governance. |
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