Firm- And Country-Level Drivers of Capital Structure: Quantitative Evidence from Central and Eastern European Listed Companies

This paper aims to investigate the determinants of capital structure in developing countries, like Romania, Bulgaria and Hungary. This research adopts the unbalanced panel data of 152 listed companies, over the period 1996-2020, estimated by two-stage least squares. This paper covers several firm-specific variables (profitability, return on assets, liquidity, size, growth, free cash flow), country-specific variables (gross domestic product growth and inflation) and institutional factors (rule of law, control of corruption and government effectiveness). Our main findings show that profitability and liquidity have negative correlations with leverage. In addition, selected institutional factors have a direct impact on capital structure, whereas for macroeconomic variables the results are mixed.