CAPITAL STRUCTURE ANALYSIS – THEORIES AND DETERMINANTS VALIDATION BASED ON EVIDENCE FROM THE CZECH REPUBLIC

145 2023, olume 26, issue 1, pp. 145–164, DOI: 10.15240/ ul/001/2023-1-009 Finance CAPITAL STRUCTURE ANALYSIS – THEORIES AND DETERMINANTS VALIDATION BASED ON EVIDENCE FROM THE CZECH REPUBLIC Jana Heckenbe ge o á1, I ena Honko á2 1 Uni e si y o Pa dubice, Facul y o Economics and Adminis a ion, Ins i u e o Ma hema ics and Quan i a i e Me hods, Czech Republic, ORCID: 0000-0003-2468-5895, [email p o ec ed]; 2 Uni e si y o Pa dubice, Facul y o Economics and Adminis a ion, Ins i u e o Economy and Managemen , Czech Republic, ORCID: 0000-0002-9335-040X, [email p o ec ed] (co esponding au ho ). Abs ac : The op imal capi al s uc u e is a key p econdi ion o business, e en hough he ask o de ining he op imal capi al s uc u e can be di icul . P e ious s udies p esen many di e en and mu ually con adic o y ac o s ha should be conside ed wi h espec o manage ial s a egic inancial decisions. The i s pa o he p esen ed con ibu ion summa ises he e ec s o he mos equen capi al s uc u e de e minan s and e iews he wo ld’s mos impo an heo ies abou he beha iou o en e p ises when deciding on capi al s uc u e. The aim o ou con ibu ion is he analysis o capi al s uc u e beha iou in he Czech en i onmen . Fundamen al capi al s uc u e heo y is e ealed by s a is ical hypo heses es ing. Mo eo e , we a e mainly a ge ing signi ican de e minan s o capi al s uc u e. The esul s help us o c ea e gene al ecommenda ions o he inancial managemen o Czech companies. In he scope o ou s udy, he e a e app oxima ely a housand na ional inancial s a emen s o Czech companies om he mos impo an sec o s o economic ac i i y o he pe iod 2016–2019. The co ela ion analysis wi h pa ial co ela ion coe icien and mul iple linea eg ession analysis was u ilised o de e mine he e ec s and signi icance o he indi idual de e minan s. Da a show ha Czech companies do no p e e deb inancing ecommended by some capi al s uc u e heo ies. Thei inancial managemen beha iou co esponds o pecking o de heo y wi h insu icien u ilisa ion o ax shield. Sec o wise analyses p o e only one excep ion; mo o ehicles wholesale, e ail ade, epai and main enance sec o gene ally p e e s inancing by deb . Based on he li e a u e e iew, we selec ed six signi ican de e minan s o capi al s uc u e: size, e u n on asse s (ROA), e u n on equi y (ROE), angibili y, asse g ow h and du a ion. Ad anced s a is ical analyses show he powe and in luence o each de e minan on capi al s uc u e and hei mu ual ela ions. Au oco ela ions can nega i ely a ec he esul s o eg ession analyses. We can conclude ha he capi al s uc u e o Czech companies is mainly in luenced by angibili y and ROA. Keywo ds: Capi al s uc u e, indeb edness, de e minan s o capi al s uc u e, p o i abili y, angibili y, asse g ow h. JEL Classi ica ion: C12, G31, G32. APA S yle Ci a ion: Heckenbe ge o á, J., & Honko á, I. (2023). Capi al S uc u e Analysis – Theo ies and De e minan s Valida ion Based on E idence om he Czech Republic. E&M Economics and Managemen , 26(1), 145–164. h ps://doi.o g/10.15240/ ul/001/2023-1-009 E+M_01_2023.indb 145 28.2.2023 10:02:55 146 2023, olume 26, issue 1, pp. 145–164, DOI: 10.15240/ ul/001/2023-1-009 Finance In oduc ion U ilisa ion o he balanced capi al s uc u e c e- a es he base o he s able de elopmen o any company. Ha ing op imal capi al s uc u e is a key s a egic ask o inancial managemen . Cu en ly, he e is a my iad o heo ies desc ib- ing he cu en s a e and ecommending he op imal s a e o en e p ises’ capi al s uc u e. Fundamen al ones a e he Modigliani-Mille heo em (Modigliani & Mille , 1958, 1963), he ade-o heo y (K aus & Li zenbe ge , 1973), he pecking o de heo y o capi al s uc u e (Fishe & Donaldson, 1962), and dynamic ade-o models (B ealey & Mye s, 2014). Ve i ying he s a emen : “The beha iou o Czech companies con i ms he p e e ence o deb inancing o e equi y. This beha iou is he same ac oss sec o s.” is he i s goal o his con ibu ion. Based on he esul , we can e eal undamen al capi al s uc u e heo y o Czech companies and we can se he ecom- menda ions alid o he Czech en i onmen in gene al. This will help inancial manage s o lead hei en e p ises in o balanced capi al s uc u es. Capi al s uc u e de e minan s ha e been examined in a huge se o s udies. Mos cu - en wo ks ocus on he powe o dependence; ne e heless we can s ill ind he esea ch gap wi hin hem. They a e missing mu ual ela ions and in luences, classi ica ion, and egional ocus. Main goal o his con ibu ion is he clas- si ica ion o signi ican de e minan s o capi al s uc u e in he scope o he Czech Republic oge he wi h au oco ela ions and powe o dependence. This pape consis s o h ee main sec ions: Theo e ical Backg ound, Resea ch Me hodo- logy, and Resea ch Resul s. The Theo e ical Backg ound sec ion summa ises and e iews he wo ld’s mos impo an heo ies abou he beha iou o en e p ises when deciding on capi al s uc u e and he e ec s o he mos equen capi al s uc u e de e minan s. The Resea ch Resul s sec ion is di ided in o se en subsec ions: Sample Analysis o he O iginal Da ase o Capi al S uc u e, Ve i ica ion o H1, Sample Cha ac e is ics o Selec ed CS de e - minan s, signi icance o selec ed CS de e mi- nan s, Mu ual Rela ions be ween De e minan s, Linea Reg ession Model wi h All Selec ed De e minan s, and Summa y o Resul s and Discussion. The whole con ibu ion is ended wi h a concluding sec ion. 1. Theo e ical Backg ound 1.1 View on Theo ies o Capi al S uc u e Se e al impo an heo ies ha e been p oposed ega ding capi al s uc u e. The Modigliani-Mille (M&M) heo em is a capi al s uc u e app oach named a e F an- co Modigliani and Me on Mille , wo econom- ics p o esso s who s udied capi al s uc u e heo y and collabo a ed o de elop he capi al s uc u e i ele ance p oposi ion in 1958. This p oposi ion s a es ha , in pe ec ma ke s, he capi al s uc u e a company uses does no ma e , because he ma ke alue o a i m is de e mined by i s ea ning powe and he isk o i s unde lying asse s. Acco ding o Modigliani and Mille , alue is independen o he me hod o inancing used and he company’s in es - men s. The M&M heo em made wo ollowing p oposi ions. The i s one asse s ha he cap- i al s uc u e is i ele an o he alue o a i m. The alue o wo iden ical i ms would emain he same, and alue would no be a ec ed by he choice o inancing adop ed o suppo he asse s. The alue o a i m is dependen on he expec ed u u e ea nings when he e a e no axes (Modigliani & Mille , 1958). P oposi ion II s a es ha he inancial le e age boos s he alue o a i m and educes WACC when ax in o ma ion is a ailable. While he Modigliani and Mille heo em is s udied in inance, eal i ms ace axes, c edi isk, ansac ion cos s, and ine icien ma ke s, which c ea es a mix o deb and equi y inancing impo an (Modigliani & Mille , 1963). The ade-o heo y o capi al s uc u e ep- esen s he idea ha a company chooses how much deb inance and how much equi y inance o use. The classical e sion o he hypo hesis aces back o K aus and Li zenbe ge (1973), who conside ed a balance be ween he dead- weigh cos s o bank up cy and he ax-sa ing bene i s o deb . This heo y is o en se up as a compe i o heo y o he pecking o de heo y o capi al s uc u e (F ank & Goyal, 2007). The pecking o de heo y pos ula es ha he cos o inancing inc eases wi h asymme ic in o ma ion. This heo y was i s sugges ed by Fishe and Donaldson (1962), and i was modi- ied by S ewa C. Mye s and Nicolas Majlu in 1984 (Mye s & Majlu , 1984). Acco ding o his heo y, asymme ic in o ma ion a ec s he choice be ween in e nal and ex e nal inanc- ing. Asymme ic in o ma ion a o s he issue o in e nal esou ces o e ex e nal ones, as he E+M_01_2023.indb 146 28.2.2023 10:02:55 147 2023, olume 26, issue 1, pp. 145–164, DOI: 10.15240/ ul/001/2023-1-009 Finance issue o deb signals he boa d’s con idence ha an in es men is p o i able and ha he cu en s ock p ices in unde alues (B ealey & Mye s, 2014). Fama and F ench (1999) c i icised bo h he ade-o heo y and he pecking-o de heo y acco ding o Mye s’ a gumen (Mye s, 1984). Dynamic ade-o models ha e been also con- i med as well as ejec ed empi ically. The indings by Boo h e al. (2001) sugges ha , al hough some o he insigh s om mode n inance heo y a e applicable ac oss coun ies, much p og ess emains o be made o unde - s and he impac o he di e en ins i u ional ea u es on capi al s uc u e choices. Le e age di e s ac oss coun ies (De Jong e al., 2008). Yang e al. (2021) showed ha Ko ean and G eek shipping companies ollow he pecking- o de heo y. Indeed, he empi ical e idence om F ank and Goyal (2007) seemed eason- ably consis en wi h some e sions o he ade- o heo y o capi al s uc u e. Simila ly, Delikanli (2020) p esen ed ha SMEs in Tu key had ied o mee hei inancing needs wi h in e nal e- sou ces, ac ing in alignmen wi h pecking-o de heo y. Nga no e al. (2021) suppo ed he iew o pecking-o de heo y as empi ical e idence o he opposi e e ec be ween i ms’ p o i and capi al s uc u e. The di ec ion o in luence o he diagnosed i m-speci ic ac o s had been consis en wi h pecking-o de heo y, as s a ed by Cze wonka and Jawo ski (2021). An impo - an pu pose o he heo y is o explain he ac ha co po a ions a e usually inanced pa ly wi h deb and pa ly wi h equi y. This heo y s a es ha inancing wi h deb b ings ax ben- e i s as well as cos s, and he cos s o inancial dis ess include bo h bank up cy cos s o deb and non-bank up cy cos s. Mye s (1984) sug- ges ed ha i he ade-o heo y we e ue, hen i ms ough o ha e much highe deb le els han we obse e in eali y. 1.2 Recen Resea ch on De e minan s o Capi al S uc u e Se e al s udies we e conside ed du ing he p epa a ion o ou pape . Chand a e al. (2021) ound ha he ac o s ha in luence capi al s uc u e included e ec i e ax a e, inancial lexibili y, g ow h, uniqueness, asse u ilisa ion, i m size, and angibili y. Nga no e al. (2021) indica ed ha capi al s uc u e had a nega- i e e ec on bo h e u n on asse s and e u n on equi y. Jawo ski and Cze wonka (2021) ob ained s ong e idence o a posi i e ela ion- ship be ween co po a e deb and angibili y and size and a nega i e ela ionship o p o i abili y and liquidi y. The ac o s ha also a ec he sha e o deb capi al u ned ou o be g ow h (posi i e ela ionship) and non-deb ax shield (nega i e ela ionship). They u he showed ha he g ow h o indus y business isk was accompanied by any inc ease in co po a e deb . Mo eo e , hese au ho s showed ha a business- iendly ins i u ional en i onmen was an impo an in luencing ac o on he in- deb edness o companies. I inc eased he le- e age and, consequen ly he e u n on equi y, especially in CEE coun ies. Gu usamy (2021) p esen ed ha he ixed- e ec s esul s, size, isk, and p o i abili y had a highly signi ican ela ionship wi h le e age. Meanwhile, g ow h oppo uni ies and angibili y ep esen ed insigni ican alues. The s udy e- ealed ha he explana o y a iables o he p o- mo e s’ owne ship and ins i u ional owne ship had a nega i e impac on le e age, while co po- a e owne ship had a posi i e in luence on he capi al s uc u e decision. Feny es e al. (2020) p esen ed he ag icul u al and ood indus y in V-4 coun ies and showed ha mo e p o i - able companies we e less dependen on deb inance, while he as -g owing companies had limi ed access o he inancial ma ke . Company size had a signi ican e ec only in he Czech Republic. Dokulil e al. (2020) showed ha he budge ing p ac ices o he Czech i ms we e no in luenced by adi ional ac o s (e.g., he size o he company and i s gi en economic sec- o ) o ce ain o he aspec s. Essen ial ace s include he owne ship s uc u e and he sha e o o eign capi al in ol ed, he la e a ec ing he ex en o au onomy o he business as o he budge a y p ocess. Delikanli (2020) ound ha no signi ican di e ence was obse ed based on size. The analysed SMEs’ asse g ow h and inc ease in p o i abili y caused an inc ease in inancial deb . Memon e al. (2020) showed ha i ms’ size, p o i abili y, s ock ma ke de elopmen , and GDP we e ela i ely consis en de e minan s. Belas e al. (2018) s udied he impac o ou de e minan s: egion, business a ea, numbe o employees, and business du a ion, on he manage ’s decisions ega ding capi al s uc u e in he SMEs in he Czech Republic. Thei main inding was ha he size o he com- pany, measu ed by he numbe o employees, E+M_01_2023.indb 147 28.2.2023 10:02:55 148 2023, olume 26, issue 1, pp. 145–164, DOI: 10.15240/ ul/001/2023-1-009 Finance a ec s i s a i ude owa d he olume o o eign and i s own capi al used o inance i s ac i i ies. The analysis also showed ha en ep eneu s who had been ope a ing hei business a longe du a ion p e e ed mo e o eign capi al han hei own capi al. The business a ea and egion whe e he en e p ise was loca ed we e insigni ican de e minan s. Mu salim e al. (2017) analysed he capi al s uc u e and i s de e minan s as p o i abili y, size, and ola il- i y. Fu he mo e, Balios e al. (2016) ound ha he e ec o capi al s uc u e de e minan s on le e age had no changed in an en i onmen o economic c isis, la ge SMEs had con inued o show highe deb a ios, he ela ionship be- ween p o i abili y and angibili y o asse s wi h le e age had con inued o be nega i e, and g ow h had been posi i ely ela ed o le e age. In addi ion, Se asquei o e al. (2016) showed ha capi al s uc u e p o i abili y, size, du a ion, angibili y, and egion we e de e minan s. Alipou e al. (2015) sugges ed ha a i- ables such as i m size, inancial lexibili y, asse s uc u e, p o i abili y, liquidi y, g ow h, isk, and owne ship had a ec ed all measu es o capi al s uc u e among I anian co po a- ions. They showed ha , due o he nega i e ela ionship be ween p o i abili y and capi al s uc u e, in es o s had o conside capi al s uc u e be o e making in es men decisions. Růčko á (2015) showed ha capi al s uc u e was de e mined by sec o , business isk, inan- cial lexibili y, app oach o isk, and axes. On he o he hand, he key de e minan s o capi al s uc u e, acco ding o Chadha and Sha ma (2015), we e size, du a ion, angibili y, g ow h, p o i abili y, isk, uniqueness, and owne ship. Fu he mo e, Va a u (2015) showed ha capi al s uc u e was nega i ely in luenced by p o i abili y. Oz ekin (2015) obse ed high de- pendence be ween capi al s uc u e and size, angibili y, p o i abili y, and en i onmen , and Chang e al. (2014) iden i ied p o i abili y, in- dus y le e age, asse g ow h, angibili y, i m size, s a e con ol, and he la ges sha ehold- ing as eliable co e ac o s explaining book le e age. Robb and Robinson (2014) ound ha he capi al s uc u e was de e mined by c edi ma ke s and du a ion. In addi ion, Dawa (2014) ound a ela ion be ween le e age and i m pe o mance a e con olling o ac o s such as size, age, angibili y, g ow h, liquidi y, and ad e ising and showed a nega i e depen- dence on i m pe o mance. Bay akda oglu e al. (2013) showed ha la ge companies and as -g owing companies ended owa d a highe le e age. Aulo á and Hla sa (2013) analysed Czech ag icul u al companies and ound ha he mos impo an de e minan s we e size and asse colla e al. P ášilo á (2012) ound ha capi al s uc u e was in luenced by du a ion (posi i ely) and p o i abili y (nega i ely). Acco ding o P ášilo á, he e was a nega i e dependence o size and posi i e dependence o e ained ea nings in a speci ic IT sec o . Ramjee and Gwa idzo (2012) ound ha he capi al s uc u e had been de e mined by angibili y, g ow h, size, and isk. They also showed he nega i e in luence o p o i abili y and ax. Chen and Chen (2011) sugges ed ha i m size, p o i abili y, and asse s uc u e we e explana o y a iables o capi al s uc u e. P e iously, he e had been some di - e ences in he capi al s uc u e among indus y ype, which hey also p esen ed. Fu he mo e, hese esea che s ound ha p o i abili y and i m size had a g ea e impac on capi al s uc- u e in non-elec onic indus ies. Kouki and Ben Said (2011) analysed F ench companies and ound ha capi al s uc u e was de e mined by size, p o i abili y, g ow h, ax shield, asymme ic in o ma ion, and inancial dis ess. Bhai d and Lucey (2010) ound ha he in luence o age, size, owne ship s uc u e, and p o ision o colla e al we e simila ac oss indus y sec o s, indica ing he uni e sal e ec o in o ma ion asymme ies. F ank and Goyal (2007) explained he mos eliable ac o s o le e age as median indus y le e age (+ e ec on le e age), ma ke - o-book asse s a io (−), angibili y (+), p o i s (−), log o asse s (+), and expec ed in la ion (+). They also ound ha di idend-paying i ms ended o ha e lowe le- e age. They also p esen ed ha size, ma ke - o-book a io, and he e ec o in la ion we e no eliable. Ma ks e al. (2009) showed ha he ollowing ac o s in luenced capi al s uc u e: cha ac e o companies, li e cycle, dynamics in he sec o , sha eholde s’ goals, capi al ma ke , legisla i e, and sec o ends. Vi iani (2008) ound a posi i e ela ionship be ween deb and owne ship. He also showed ha capi al s uc u e was a ec ed by sec o . Valach (2008) p esen ed ha capi al s uc u e was a ec ed by size, p o i abili y, angibili y, and g ow h. Acco ding o Valach, axes and sec o we e no signi ican ac o s. Almazan and Mo- lina (2005) ound he dispe sion in le e age E+M_01_2023.indb 148 28.2.2023 10:02:55 149 2023, olume 26, issue 1, pp. 145–164, DOI: 10.15240/ ul/001/2023-1-009 Finance a ios among i ms wi hin an indus y and e- la ed his dispe sion o indus y cha ac e is ics. Song (2005) ound ha he de e minan s o angible asse s and axes in luenced capi al s uc u e. Baue (2004) p esen ed ha he le e age o Czech-lis ed i ms was posi i ely co ela ed wi h size, and i was nega i ely co - ela ed wi h p o i abili y and angibili y. The e was a nega i e ela ionship be ween le e age measu ed in ma ke alue and g ow h oppo - uni ies. Mo eo e , le e age was posi i ely co - ela ed wi h ax and nega i ely co ela ed wi h non-deb ax shields, albei on a lowe le el o s a is ical signi icance. Tab. 1 summa ises signi ican capi al s uc- u e de e minan s men ioned in p e ious s ud- ies. The mos equen de e minan s a e: size, p o i abili y, angibili y, asse g ow h, sec o , and du a ion. O he ac o s no men ioned in Tab. 1 ha in luence he capi al s uc u e can be sum- ma ised as ollows: a) Taxes and ax shield, e.g., Fan e al. (2012), H dý (2011), Kuma e al., (2017) and, Aca a ci (2015). b) Risk including i m isk and mac oeconomic isk, e.g., Li e al., (2021) and, Baum e al. (2017). Au ho s Yea Size P o i abili y Tangibili y Asse g ow h Sec o Du a ion Chand a e al. 2021 x x x Nga no e al. 2021 − Jawo ski & Cze wonka 2021 +−+ + Gu usamy 2021 x x (x) (x) Feny es e al. 2020 x − Dokulil e al. 2020 x x Delikanli 2020 (x) x + Memon e al. 2020 x x Belas e al. 2018 x (x) + Mu salim e al. 2017 x x Balios e al. 2016 +− − + Se asquei o e al. 2016 x x x x Alipou e al. 2015 x − x x Růčko á 2015 x Chadha & Sha ma 2015 x x x x x Va a u 2015 − Oz ekin 2015 x x x Chang e al. 2014 x x x x x Robb & Robinson 2014 x Dawa 2014 − x x x x Bay akda oglu e al. 2013 + + Aulo á & Hla sa 2013 x P ášilo á 2012 − − + Ramjee & Gwa idzo 2012 x − x x Tab. 1: The mos equen de e minan s o capi al s uc u e – Pa 1 E+M_01_2023.indb 149 28.2.2023 10:02:55 150 2023, olume 26, issue 1, pp. 145–164, DOI: 10.15240/ ul/001/2023-1-009 Finance c) Cha ac e is ics o CEO, e.g., CEO ag- g essi eness (P ášilo á, 2012; Růčko á, 2015), CEO age (McGuinness, 2021), CEO beha iou unde p essu e (Be ge e al., 1997), managemen discussion and analy- sis (Wang e al., 2021), and educa ed CEO (Honjo, 2021). d) O he inne de e minan s: di idend paying (F ank & Goyal, 2007), ma ke alue (Bake & Wu gle , 2002), asymme ic in o ma ion (Se asquei o e al., 2016), inancial lexibil- i y (Alipou e al., 2015), ea nings manage- men in Okye e e al. (2021), and An e al. (2016), ad e ising (Dawa , 2014), deb ca- paci y (Honjo, 2021), uniqueness (Chadha & Sha ma, 2015), inancial s ess = isk o losing con ol (Cho e al., 2014), liquidi y (Jawo ski & Cze wonka, 2021). e) Owne ship: local owne ship (Ma uk & Sjo- g en, 2021), ins i u ional owne ship and co - po a e owne ship (Gu usamy, 2021), and owne ship gene ally (Dokulil e al., 2020). ) Loca ion: egion (De Jong e al., 2008; Gao e al., 2011), local co up ion (Fan e al., 2012), de eloped and de eloping coun ies (Bake & Wu gle , 2002). g) Mac oeconomic and o he ex e nal de- e minan s such as in la ion (Jawo ski & Cze wonka, 2021), inancial ins i u ion de elopmen capi al ma ke (Robb & Rob- inson, 2014), GDP and de elopmen o ma ke (Memon e al., 2020), economic policy unce ain y (Li & Qui, 2021), inancial c isis (Baum e al., 2017), s a e con ol (Chang e al., 2014), legisla ion (Fan e al., 2012), and compe i ion (P ášilo á, 2012). Al hough he e exis a my iad o esea ch pape s dealing wi h capi al s uc u e de e mi- nan s, as summa ised abo e, we can s ill ind he esea ch gap wi hin hem. In gene al, p e i- ous s udies do no ecognise posi i e o nega- i e dependence be ween capi al s uc u e and i s de e minan , and hey a e no ocused on he Czech en i onmen . P o i abili y is he second mos equen de e minan o he capi al s uc- u e; howe e , measu es o p o i abili y a e no uni ied and some imes no e en men ioned. We a e examining wo p o i abili y measu es (ROA and ROE) o see, which one o hem is a be e capi al s uc u e de e minan . Mu ual ela ions be ween de e minan s a e gene ally neglec ed as well. A basic assump ion o eg ession anal- ysis is ha explana o y a iables a e indepen- den . The e o e u ilisa ion o s ongly co ela ed de e minan s can signi ican ly a ec eg ession model esul s. Au ho s Yea Size P o i abili y Tangibili y Asse g ow h Sec o Du a ion Chen & Chen 2011 x x x x Kouki & Ben Said 2011 x x x Bhai d e al. 2010 x x x F ank & Goyal 2007 (x) − + + + Ma ks e al. 2009 x x Valach 2008 x x x x (x) Vi iani 2008 x Almazan & Molina 2005 x Song 2005 x Baue 2004 +− − F equency 24 22 15 13 9 8 Sou ce: own No e: x : con i med dependence; + : con i med posi i e dependence; – : con i med nega i e dependence; (x) : con i med independence. Tab. 1: The mos equen de e minan s o capi al s uc u e – Pa 2 E+M_01_2023.indb 150 28.2.2023 10:02:55 151 2023, olume 26, issue 1, pp. 145–164, DOI: 10.15240/ ul/001/2023-1-009 Finance 1.3 Goals and Hypo heses As a i s s ep, a hypo hesis has been es ablished o e eal he gene al beha iou o en e p ises in he Czech en i onmen . Ve i ied hypo hesis H1 is s a ed as ollows. H1: The beha iou o Czech companies con i ms he p e e ence o deb inancing o e equi y. This beha iou is he same ac oss sec o s. Hypo hesis s a emen o igins om he ade-o heo y (K aus and Li zenbe ge , 1973), whe e deb inancing is p e e ed o e equi y up o a gi en c i ical inancial le el. Main aim o ou con ibu ion is a ge ed in he second s ep, whe e signi ican de e minan s o he capi al s uc u e o Czech companies a e de ec ed. We a e sea ching hem wi hin he mos equen de e minan s: size (SI), p o i - abili y (ROA, ROE), angibili y (T), asse g ow h (AG), sec o (SE), and du a ion (DU), ha has been iden i ied in he p e ious sec ion (Tab. 1). Addi ionally o he s a emen o capi al s uc u e de e minan signi icance, we classi y hem in o ou g oups: s ong signi icance, medium signi icance, weak bu s ill signi ican and no signi ican . Mo eo e , we ecognise posi i e esp. nega i e impac o selec ed de e minan on indeb edness. Compa ing he pe o mance o wo di e en p o i abili y measu es (ROA and ROE), we can ecommend he one mo e sui - able o he Czech en i onmen . Las bu no leas , he co ela ion analysis wi hin selec ed de e minan s is pe o med. I e eals co ela ions ha can mis ep esen eg ession analysis esul s. This leads o he ecommenda ion abou pai s o de e minan s ha should no be applied oge he . 2. Resea ch Me hodology 2.1 Da a Sou ces The sou ce da ase , gene a ed om selec ed eco ds in he publicly a ailable egis e (ARES, 2020), consis s o 1,196 unconsolida ed na- ional inancial s a emen s o Czech companies wi hin he pe iod o 2016–2019. A c ucial ac o o company selec ion is ha hey ha e no been liquida ed be o e Augus 31, 2020. O he en- ance c i e ia, such as he legal o m, size, and du a ion we e no implemen ed. Tab. 2 p esen s da a p ocessing o de e mine de e minan s. 2.2 Me hodology Fi s o all, he en i e da ase was analysed using sample s a is ics. Ou lie s and un eliable De e minan Regis y da a used Fo m o p ocessing Size (SI) Numbe o employees Classi ica ion acco ding me hodology (Zákon č. 563/199 Sb., Zákon o úče nic í, 2016 [Ac No. 563/199 Coll. on Accoun ing, he Czech Republic, 2016**]) P o i abili y P o i , equi y, asse s Indica o s e u n on asse (ROA) and e u n on equi y (ROE) Tangibili y (T) Fixed asse s, asse s Sha e o ixed asse s in o al asse s Asse g ow h (AG) Asse s Ra e o asse g ow h Sec o (SE) Economic ac i i y Classi ica ion o selec ed* economic ac i i ies CZ-NACE: A – Ag icul u e, o es y, and ishe ies; C – Manu ac u ing; F – Cons uc ion; G – Wholesale and e ail ade, epai and main enance o mo o ehicles; I – Accommoda ion, ca e ing, and hospi ali y; J – In o ma ion and communica ion ac i i ies Du a ion (DU) Age o company Sou ce: own No e: *The mos impo an a eas o he na ional economy o he han inance and insu ance (A ea K) we e selec ed, as his sec o is speci ic o i s high indeb edness, which is gi en by ecei ing deposi s om clien s; **h ps://aplikace.m c . cz/sbi ka-zakonu/Sea chResul .aspx?q=2016& ypeLaw=zakon&wha =Rok Tab. 2: Da a p ocessing o de e mine de e minan s E+M_01_2023.indb 151 28.2.2023 10:02:55 152 2023, olume 26, issue 1, pp. 145–164, DOI: 10.15240/ ul/001/2023-1-009 Finance da a ha do no co espond o common eco- nomic p inciples we e omi ed. Fo all upcom- ing analyses, no mali y was assumed, and he signi icance le el was p e-se o α = 0.05. The co ela ion analysis wi h pa ial co ela- ion coe icien and mul iple linea eg ession analysis was u ilised o de e mine he e ec s and signi icance o indi idual de e minan s. The powe ul so wa e ool S a is ics 12 was help ul in ou analyses. The co ela ion analysis es ed indi idual de e minan s o see i hey we e sui - able de e mining a iables. App op ia e de e - minan s we e subjec ed o eg ession analysis o de e mine he magni ude o he impac on he capi al s uc u e and he ype o his depen- dency (posi i e, nega i e e ec ). The pa ial co ela ion measu es he co e- la ion be ween wo a iables ha emains a e con olling o he e ec s o one o mo e o he p edic o a iables. The semi-pa ial co ela ion is a be e indica o o he p ac ical ele ance o a p edic o because i is scaled ela i e o he o al a iabili y in he esponse a iable. The gene al pu pose o mul iple eg essions is o lea n mo e abou he ela ion be ween se e al p edic o a iables and he esponse a iable. Ou lie s (ex eme cases) can se iously bias he esul s o eg ession analyses, and he e o e hey should be de ec ed and deal wi h app o- p ia ely (Hill & Lewicki, 2007). 3. Resea ch Resul s 3.1 Sample Analysis o O iginal Da ase o Capi al S uc u e Fig. 1 and Tab. 3 indica e ha he e a e emo e alues ha a e caused by nega i e equi y. The alues o capi al s uc u e (CS) ange om −4.5 o 70, showing ha some companies ha e 70 imes mo e deb han equi y. F om a ma ke poin o iew, unde akings wi h nega i e equi y should no unc ion a all. This sugges s ha company is wo king on he i a ional economic Fig. 1: Sample analysis o o iginal da ase o capi al s uc u e Sou ce: own (S a is ics 12 so wa e) Va iable Sample s a is ics o o iginal CS NA e . Med. Min Max S d. de ia ion Va ia ion coe . Skew. Ku . CS 1,162 1.169 0.473 −4.549 70.197 4.681 400.136 10.047 114.714 Sou ce: own (S a is ics 12 so wa e) Tab. 3: Sample analysis o o iginal da ase o capi al s uc u e E+M_01_2023.indb 152 28.2.2023 10:02:56 153 2023, olume 26, issue 1, pp. 145–164, DOI: 10.15240/ ul/001/2023-1-009 Finance p inciples. Gene ally speaking, hese unde ak- ings pe sis only because i is he in e es o ano he pa y; e.g., a pa en company ha sub- sidises addi ional capi al o i s subsidia y, such as in he o m o loans. In iew o he abo e indings and he a ea o examina ion o he capi al s uc u e, his pa o he companies wi h nega i e equi y was excluded om he sample popula ion. Only da a anging om he unde s andable 0 o 1 a e conside ed in he ollowing analyses ( hese companies we e ma ke ed as ou lie s), spe- ci ically 13.7% o companies ac oss all sec o s. O he ou lie s we e de ec ed o ROE analyses (companies wi h a alue highe han 5 a e no coun ed) and AG analyses (companies wi h a alue highe han 8 a e no coun ed). Sample dis ibu ion and o he sample cha - ac e is ics o he cleaned da ase a e illus a ed in he ollowing Fig. 2 and Tab. 4. This able also shows he minimum and maximum limi s, a an in e al (0–1), which co esponds o he modi ied da ase . The a e age alue o capi al s uc u e is highe han he median. These qua iles show ha mo e han 50% o compa- nies ha e an indeb edness o less han 50%; i.e., mos companies p e e equi y inancing. This con i ms he le skew o he dis ibu ion o CS. I seems ha selec ed companies do no p e e deb . This hypo hesis will be es ed in he ollowing subchap e . 3.2 Ve i ica ion o S a ed Hypo hesis 1 (H1) H1: The beha iou o Czech companies con- i ms he p e e ence o deb inancing o e equi y. This beha iou is he same ac oss sec o s. This chap e es s his hypo hesis. Fi s , le us es he hypo hesis ha he mean capi al s uc u e is highe han 0.5, ega dless o he selec ed sec o . As no mali y is assumed, one sample - es wi h = −7.74 and p- alue a Fig. 2: Sample analysis o modi ied da ase o capi al s uc u e Sou ce: own (S a is ics 12 so wa e) Va iable Sample s a is ics o modi ied CS NA e . Med. Low. qua . Up. qua . Qua . ange S d. de ia ion Va . coe . Skew. Ku . CS 1,012 0.429 0.401 0.181 0.680 0.499 0.290 67.656 10.047 −1.132 Sou ce: own (S a is ics 12 so wa e) Tab. 4: Sample analysis o modi ied da ase o capi al s uc u e E+M_01_2023.indb 153 28.2.2023 10:02:56 160 2023, olume 26, issue 1, pp. 145–164, DOI: 10.15240/ ul/001/2023-1-009 Finance The beha iou o du a ion, he second weakly signi ican de e minan , shows ha olde i ms ha e mo e e ained ea nings and a e he e o e mo e likely o inance hemsel es wi h equi y han wi h deb . Based on Tab. 1, du- a ion is classi ied as signi ican by eigh s udies and i s posi i e e ec is e ealed by Belas e al. (2018) and P ášilo á (2012). The no -signi ican g oup includes only one de e minan – size. The size o he en e p ise is no impo an when he Czech company is deciding on he capi al s uc u e. The e exis jus a small posi i e dependence o he company size on he indeb edness. The nonsigni icance o company size is he ou come o o he s ud- ies as well, e.g., Delikanli (2020) and F ank and Goyal (2007). Ne e heless, a my iad o s udies classi ies size as he signi ican de e minan . The mos ecen ones a e Chand a e al. (2021), Gu usamy (2021), Feny es e al. (2020), Dokulil e al. (2020), and Menon e al. (2020). Posi i e dependence on company size is shown by Jawo ski and Cze wonka (2021), Balios e al. (2016), Bay akdo oglu e al. (2013), and Baue (2004). On he o he hand, he nega i e co - ela ion be ween size and indeb edness is he ou come o Dawa (2014) and P ášilo á (2012). In he hi d and he las le el o pe o med capi al s uc u e s udy, a linea eg ession model has been buil and he ela ionships be ween indi idual de e minan s ha e been examined. Fishe F- es con i med model sui abili y; ne - e heless, he alue o he index o de e mina- ion shows ha his model is inapp op ia e o p edic ion making. The mu ual ela ionship be ween ROA and ROE was explained in he p e ious pa ag aph. O he s ongly co ela ed de e minan s a e du a ion and size. Businesses usually expand o e ime; he e o e, olde busi- nesses end o be la ge . As a capi al s uc u e de e minan du a ion should be p e e ed o e size, because o he low in luence o size on indeb edness. In addi ion, i was ound ha he de e minan s o angibili y and asse g ow h ha e a mu ual ela ionship wi h all o he de e minan s. As hey a e dependen on o he de e minan s, hei u ilisa ion can nega i ely a ec eg ession analysis esul s. I was in es iga ed whe he hei adding o omission would a ec ou eg ession esul s and luckily bo h models we e iden ical in sui abili y and p edic ion powe . Las bu no leas , a se o ecommenda- ions o he inancial manage s and c edi o s is p esen ed. 1. Financial manage s should include mo e deb inancing in he capi al s uc u e due o he possibili y o ax shield u ilisa ion. One o ou indings s a es ha Czech companies p e e equi y o e deb . Howe e , equi y is gene ally mo e expensi e capi al han deb and due o in o ma ion asymme y en e - p ise manage s do no know abou i . Cos s o equi y a e he so-called implici oppo uni y cos s and hey a e no appa en in he inancial s a emen s, unlike, o example, he in e es on loans. Oppo uni y cos also includes u ili y o economic bene i and indi idual loss. S udies like his can p o ide s ong in o ma ion o inan- cial manage s and he e o e, hey will bene i om cheape o eign capi al mo e e icien ly. 2. C edi o s should sea ch h ough signals in- dica ing high indeb edness. High indeb edness o a company can be expec ed, when i s ROA is low and angibil- i y oge he wi h asse g ow h a e high, as ou analyses p o e. Tangibili y is de ined by he high sha e o ixed asse s in o al asse s. The leng h o ime on he ma ke also a ec s he company’s capi al s uc u e. Fo example, s a -ups end o ha e mo e deb han olde companies, cause hey can u ilise hei e ained ea nings. The e ec o he size is no signi ican in he Czech en i onmen . Conclusions Op imal capi al s uc u e, as a s a egic ask o inancial managemen , c ea es he g ound o he de elopmen and s abili y o any en e p ise. The main aim o his con ibu ion is o e eal and classi y signi ican de e minan s o capi al s uc u e in he Czech en i onmen . As a i s s ep, we a e pe o ming analyses o he gene al beha iou o Czech companies and speci ic sec o wise beha iou . S a ed hypo heses based on he ade-o heo y a e ejec ed; only he sec o o wholesale and e ail ades ac s in e sely. Czech companies p e e equi y o e deb inancing. This co esponds o he pecking o de heo y expec ing p e e en ial use o e ained ea nings. To inancial manag- e s, we can ecommend conside ing ax shield u ilisa ion and including mo e deb in he capi al s uc u e. Due o in o ma ion asymme y, com- panies p e e mo e expensi e equi y. The mos impo an pa o ou con ibu ion is de o ed o he capi al s uc u e de e minan s. We selec he six mos equen de e minan s o p e ious capi al s uc u e s udies: size, E+M_01_2023.indb 160 28.2.2023 10:02:59 161 2023, olume 26, issue 1, pp. 145–164, DOI: 10.15240/ ul/001/2023-1-009 Finance p o i abili y (ROA, ROE), angibili y, asse g ow h, sec o , and du a ion; and we classi y hem by hei powe o dependence wi h capi al s uc u e. Mo eo e , we analyse mu ual ela- ions o de e minan s and hei posi i e espec- i ely a nega i e e ec on indeb edness. To sum up ou ou comes, he Czech en- i onmen capi al s uc u e is subs an ially de e mined by angibili y and p o i cha ac e - is ics. We conside ROA o be a mo e app o- p ia e capi al s uc u e de e minan han ROE because a highe ROA means a highe p o i . Deb inancing is p e e ed by en e p ises wi h lowe ROA. Analysed de e minan s a e s ongly co ela ed wi h each o he ; o example, he e is a signi ican dependence be ween company size and i s age, and be ween ROA and ROE. Asse g ow h has a middle s ong dependence on all o he de e minan s; he e o e, i should no be used oge he wi h o he de e minan s. Ou s udy is limi ed by he da ase pe iod and we a e no aking in o accoun inancial s a emen s du ing he co id c isis (2020 ill now). Ne e heless, i bene i s his s udy as well, and signi ican de e minan s o capi al s uc u e in he Czech en i onmen a e e ealed in s abi- lised economic g ow h. The ollowing esea ch will be ocused on indi idual business sec o s. We al eady p o ed ha wholesale and e ail ades ac di e en ly om o he en e p ises. We will pe o m ad anced sec o wise analyses o signi ican capi al s uc u e de e minan s and we could add indeb edness and bank up cy modelling as well. Acknowledgemen s: This con ibu ion was inancially suppo ed by he ins i u ional suppo o he Uni e si y o Pa dubice. 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