Influence of Selected Determinants on the Financial Structure in the Civil Engineering Companies in the Selected Countries
At the beginning of the last century economists began to deal with another area of corporate finance, namely the capital structure, which includes long-term sources of finance. If we also include short-term sources of funding, we get to the financial structure. Deciding on the capital or financial structure is one of the crucial activities of financial managers in companies. The importance of this topic corresponds to the number of studies that have been written since the beginning of the last century. Since then, economists have been researching new theories, new determinants, and other influences every year to explain or facilitate decision-making by managers. Despite the numerous literature and results on this subject, it is still important to pursue this area, as there is no apparent shift towards certain links between determinants and the form of capital/financial structure. Therefore, it is important to examine more and more samples of companies, sectors, and countries to have more results on which to conclude.
The research focuses on companies from eleven selected countries belonging to the civil engineering sector, which is a cyclical and dynamic industry, as it is not necessary to build in times of economic crisis or recession. Regarding the sources of funding, this sector should be characterized by a predominance of short-term funding sources, given that the assets should be dominated by current assets in the form of inventories (building material). Selected countries are the Czech Republic, Slovakia, Poland, Hungary, Austria, Slovenia, Romania, Bulgaria, Estonia, Latvia, and Lithuania. The sample covered a total of 6,524 companies, of which 5,995 are medium-sized enterprises, and 529 are large companies, during the period 2009–2018. The period thus includes the 2009 financial crisis and the European debt crisis. The data needed for the research was obtained from the Orbis database.
In terms of variables, the financial structure is represented by three forms of debt, namely total, long-term and short-term debt in the form of a debt-equity ratio. Individual determinants are profitability, non-debt tax shield, economic development in the form of GDP growth rate and inflation rate. Detection of dependencies between variables will be done by panel regression using the Generalized Method of Moments method. The robustness test is required for models to be indicative, in this case Sargan’s test.
The first relationship found in many countries is the relationship between past and future debt. The results are dominated by slightly positive links, which have very low coefficients in almost all cases, and therefore past indebtedness has a very negligible effect on future debt. However, for large Austrian companies in the case of total and long-term debt, this link is strong and positive compared to other results. This result means that the use of debt financing in the past will lead to an increase in the following period.
Profitability expectations are met for sixteen outcome coefficients, while the remaining twelve coefficients have not been met. Apart from two cases (medium-term Estonian companies for short-term debt and large Slovak companies for total debt), the negative coefficients are relatively high and are therefore strong links. Thus, more profitable businesses will use more of own sources of financing, such as retained earnings, as profits grow. Conversely, the positive coefficients are slightly low for medium-sized companies, and the increase in profitability does not have such a significant impact on the increase in debt. However, for large companies, they already have integer coefficients, and so for Polish companies for all forms of debt, Romanian and Austrian companies can claim that with the rise in profitability, the debt value will increase. The positive links are explained by the economic development of these countries, which in Poland has been very favorable throughout the period and taking into account the fact that more profitable large companies have a lower risk of bankruptcy and are therefore more attractive to creditors; a positive link is quite expected in this case. The Austrian and Romanian economies have been hit by the financial crisis, but the economies have been supported in some ways by loans or government interventions, making the credit market not freezing.
Regarding the non-debt tax shield, only four ties have been proven by medium-sized companies, confirming our assumption. In large companies, far more links were found, namely twelve, half of which confirmed and half refuted our assumption. At the same time, the coefficients of this variable are quite high, and therefore there is a strong link to debt. A negative link indicates that if these companies continue to invest in fixed assets, they are likely to continue to benefit from depreciation, which reduces profit or loss and is thus own source of financing.
Austrian, Slovenian and Romanian medium-sized companies and Polish, Hungarian, Bulgarian, Romanian, Lithuanian large companies fulfill a positive prerequisite for economic development. As regards short-term debt, our expectations are met by Slovenian and Bulgarian medium-sized enterprises and Czech, Slovak and large Austrian companies. The coefficients for the influence of GDP are also high for short-term debt, in addition to the case of Austrian medium-sized companies, even at some companies (large Hungarian companies) very high in thousands. Together with the non-debt tax shield and the inflation rate, it has the most significant impact on the level of debt.
The last variable examined was inflation, the results of which are varied or disproved. A negative impact has been found for medium-sized Austrian and Lithuanian large companies for all forms of debt and implies a decline in debt as a result of a decrease in the real interest rate, which makes real debt lower. The inflation rate in the Austrian economy grew only in three years compared to the previous year, with average values around 1.5 %, which does not seem to be a dizzying amount for a massive decline in debt, as the coefficients are relatively high. The inflation rate in the Lithuanian economy was different, as the economy had a relatively high inflation rate and therefore the advantage of cheaper debt was higher. A positive link with inflation has been revealed for medium-sized Lithuanian companies for total debt and medium-sized Hungarian and Romanian companies for long-term debt. In these economies, particularly in the early part of the period under review, there were high inflation rates, which could give the impression that such a rate would either remain or increase, leading to a higher debt reduction. The positive assumption regarding short-term debt was confirmed only by large Austrian companies. In this case, creditors will hedge against possible rising inflation, and therefore there will no longer be an advantage of cheaper debt.