An empirical investigation of the capital structure of Austrian and Hungarian listed companies
Many theoretical and empirical efforts have been made since Modigliani and Miller's infamous 'irrelevance theorem' to explain how firms choose their capital structure. Empirical tests can be performed by different methods, but attention must be paid to problems of a primarily methodological nature, which may distort results. The aim of the study is to apply a simple model to demonstrating the differences and similarities between capital-structure decisions by Austrian and Hungarian public listed companies. The findings show that the capital structure of listed firms in both countries can be explained by what can be called the standard explanatory variables used widely in the literature. The models have an acceptable adjusted coefficient of determination, ranging between 30 and 34 per cent. The leverage ratio of Hungarian firms is influenced most importantly by their profitability, whilst in the case of Austrian firms, it is the growth rate that has the strongest impact. Based on the results, the author argues that the pecking-order theory seems to have a somewhat better explanatory power for the capital structures of big firms in the two countries than the static trade-off model does. However, it looks as if the financing behaviour in the two countries is different. Further investigations would be needed to clarify the underlying causes of this difference.
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