Capital Structure and Profitability. The Case of Companies Listed in Romania

Abstract

Alongside with the acquisition and the efficient use of assets (investment decision and asset management), financial managers are concerned with their financing. The capital structure of a company is of interest not only for practitioners but also for theorists so that in the last six decades important theories were developed from the capital structure irrelevance theory of Modigliani and Miller to theories that include market imperfections and incentives into the models (the static trade-off theory, the pecking order theory). In practice, financial managers take into account not only quantitative determinants, but also qualitative ones, so that the decision becomes complex and the outcome differs across industries and companies. Many empirical studies were performed in the last decades in an effort to identify the relationship between the chosen capital structure and the performance of a company. We aim to add specific results to empirical studies already performed. Our study investigates the relationship between the financial mix and the profitability of companies listed in Romania, covering the interval 2017-2021.