The Interaction of Internal Determinants and Decisions on Capital Structure at the Baltic Listed Companies

The selection of the optimum structure of financing sources is one of the most widely analysed fields of corporate finance governance. Despite that, the existing theoretical models cannot fully explain the selection of capital structure of every company. So far researchers in this field have not reached an agreement on which determinants have the greatest influence of corporate behaviour and which of them predetermine financial solutions. The majority of empirical researches carried out up to the present are based on the corporate data analysis of developed countries and the findings obtained are rather diverse, which shows that different internal determinants have different effects on financing decisions not only in different countries but in different periods as well. To research the structure of the Baltic listed companies and determinants that influence it the financial indicators of the Lithuanian, Latvian and Estonian listed companies taken from the annual reports-prospectuses of these companies were used. Only the data of non-financial companies were included in this research because decisions taken by financial institutions are specific and predetermined by other determinants. The research covers the period of 2000-2005. In this research indicators of the capital structure based on the balance-sheet value of capital as well as those calculated according to the value of the capital market were applied. To establish the strength of impact of the internal specific determinants the multidimensional analysis of correlation between the capital structure indicators and the main determinants, such as return on assets, operational profitability, tangibility, non-debt tax shields, a company's size and growth possibilities and free cash flow, was employed. To check the reliability of the obtained correlation, the value p was used. The presented findings show statistically important values when the level of significance is 0.01 (i.e. correlation between indicators was considered reliable and significant, when p < 0.01) and 0.05 (i.e. correlation between indicators is significant and reliable when the value p < 0.05). The conducted research disclosed significant differences in the capital structure of the Baltic listed companies and that of developed countries' companies: the listed companies of the Baltic states use much less loan capital and poorly utilize financial borrowing possibilities. The empirical research in many cases proved the hypothesis of the pecking order that companies, first of all, use up their internal resources and only afterwards try to employ external financing sources by granting priority to financial debts.