The Determinants of the Capital Structure of Russian Companies against the Backdrop of Financial Turbulence: Empirical Analysis Based on Panel Data

Abstract

The study presents the empirical analysis of capital structure determinants of Russian companies aimed at the investigation of practical applicability of theoretical approaches amid financial turbulence. Empirical estimates presented in this paper are obtained through panel data statistical analysis (panel regression); the sample comprises data covering the 2000–2022 period for 1200 companies in the non-financial sector of the national economy. When calculating the dependent variable – leverage – both market-based and balance sheet estimates are used. The results show that it is impossible to single out a unique approach to capital structure decisions since the signs of the coefficients at traditional capital structure determinants that were proven to be statistically significant in the models under consideration are consistent with both trade-off and pecking order theories. The main hypothesis of the research was confirmed: when it comes to capital structure, Russian companies follow the approach of raising debt only when internal funds become insufficient, while at the same time supporting the balance between the risk of loss of financial independence and the benefits of debt financing. To test the obtained empirical results for robustness, the models of relations between Russian companies’ capital structure and the determinants under consideration were analyzed separately for crisis and pre-crisis periods. Although certain changes in regression coefficients were observed, the impact of all major determinants appeared to be consistent and not dependent on the economic cycles. Alongside traditional statistically significant determinants, exchange rate volatility was introduced. It proved to be significant at a 10% level in the fixed effects model using balance sheet estimates. Subdivision of the sample into two subsamples depending on the public status of companies rendered no substantial impact on the major capital structure determinants with the exception of debt tax shield and exchange rate volatility estimates.