CAPITAL STRUCTURE AS A DETERMINANT OF WORKING CAPITAL MANAGEMENT: EMPIRICAL EVIDENCE ACROSS SIZE GROUPS OF FIRMS IN THE EU COUNTRIES
Pages: 36-54 Published: 29 Aug 2014
Views: 2,458 Downloads: 6,311
Abstract: According to the capital structure theories and empirical research, the direction of the relationship between financial leverage and working capital is usually negative. This study aims at verifying the significance and the direction of the way capital structure impacts working capital on a sample of private firms across 9 EU countries. The theoretical part of the paper contains literature review reflecting the impact of the selected factors on working capital management. In the empirical part the correlation between several capital structure ratios and working capital ratios is examined across countries and size groups of firms in order to find out how the country-specific factors and the factors related to firm size influence this relationship in the period 2000-2010. The data is provided by the BACH-ESD database published by the European Commission. Findings provide evidence that both the direction and the significance of the relationship are considerably influenced by country-specificity and firm size.
Keywords: capital structure, working capital, european union, firm size, country factor