The Determinants of Capital Structure: Evidence from Albania

Abstract

This paper attempts to explore the impact of firm specific factors and macroeconomic factors on capital structure decision for a sample of 53 non- listed firms, which operate in Albania, over the period 2008-2011.In this paper is used total debt to total assets (TDTA) as dependent variable and nine independent variables: tangibility (TANG), liquidity (LIQ), profitability (ROA , size (SIZE),business risk(RISK) , non-debt tax shields (NDTSH),GDP growth rate(GDP), inflation rate (INF) and interest rate (INT). The investigation uses cross-sectional time series data which are collected from the Balance Sheet Annual Reports, the official document delivered to the State Tax Office. This study found that tangibility (the ratio of fixed assets to total assets), liquidity (the ratio of current assets to current liabilities), profitability (the ratio of earnings after taxes to total assets), size (natural logarithm of total assets) and risk (the ratio of standard deviation of sales to average value of sales) have a significant impact on leverage. Also it is found that NDTSH has a negative but not significant relation with leverage and GDP growth rate, inflation and interest rate have a positive but not a significant relation with leverage.