Work detail

Relationship between Performance and Capital Structure: Empirical Study of Czech Manufacturing Companies

Author: Mgr. Daniel Vopat
Year: 2016 - summer
Leaders: Mgr. Barbara Pertold-Gebicka M.A., Ph.D.
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 78
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/163517/
Abstract: The thesis examines the relationship between performance (measured by return on assets, return
on equity and profit margin) and capital structure (measured by indebtedness) in Czech
manufacturing companies and how this relationship has changed with respect to the world
financial crisis. In order to address the issue of heterogeneous sectors present in manufacturing
industry and to provide a universally applicable conclusion, the key variables were transformed
according to the percentile rank within a given manufacturing sector in a given year. The
general conclusion is that the examined relationship is not the same for all levels of
indebtedness. The relationship is positive until it reaches a certain level of indebtedness and
above this threshold the relationship is negative. This threshold differs across different industry
sectors, time and with the usage of different performance measures. The only exception is
a model using time period before the financial crisis and profit margin as a performance
measure, which predicts the relationship to be negative for all levels of indebtedness. Regarding
the development of the examined relationship over time, the optimal indebtedness decreased
during and after the financial crisis when the performance was measured by return on assets or
return on equity. The opposite dynamics was observed when the performance was measured by
profit margin.
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