[Digital ISBN: e-2184-898X |]

ERBE 01 1 03

Which Determinants Matter for Capital Structure? Evidence from Polish and Portuguese Nonfinancial Firms


a WSB University at Gdańsk, Poland, and CICEE, Portugal; b CICEE, and Catholic University of Portugal.

To cite this article:

Jaworski, J. & M. Coutinho dos Santos. 2021. Which Determinants Matter for Capital Structure? Evidence from Polish and Portuguese Nonfinancial Firms. European Review of Business Economics I(1): 27-60.


Received: 20 February 2021. Accepted: 12 July 2021. Published: 31 December 2021

Language: English

View full text (PDF)


This paper uses ANOVA and static and dynamic panel regression analyses, to investigate the capital structure behavior of strongly balanced and matched samples of Polish (PL) and Portuguese (PT) nonfinancial firms, over the 2011-2019 period. We test for capital structure determinants at the firm, industry, and country level, whether firms revert to leverage target ratios, and whether euro area affiliation matter in terms of the cost of capital. We found that capital structure is significantly and positively associated with financial slack, debt tax shields and growth opportunities, and negatively related to the asset tangibility, internal funding, non-debt tax shields, exposure to bankruptcy risk and the cost of capital. The magnitude of those relationships is stronger for PT firms on the exposure to bankruptcy risk and growth opportunities, but weaker for those firms on the cost of capital, sovereign risk, and business cycle. On the relationships with financial slack, debt and non-debt tax shields, PL firms exhibit stronger effects. We also found that sample firms significantly revert their financial leverage to target leverage ratios. Last, results suggest that controlling for sovereign debt risk and business cycles, firm leverage is positively influenced by the affiliation with the euro zone. Our findings are robust to the endogenous nature of empirical corporate finance, and to alternative model and variable specifications.


Almeida, H., I. Cunha, M. Ferreira & F. Restrepo. 2017. The Real Effects of Credit Ratings: The Sovereign Ceiling Channel. Journal of Finance 72(1): 249-290.

Altman, E., E. Hotchkiss & W. Wang. 2019. Corporate Financial Distress, Restructuring, and Bankruptcy: Analyze Leveraged Finance, Distressed Debt, and Bankruptcy. 4th Edition. John Wiley & Sons, Inc., Hoboken, New Jersey.

Altman, E., M. Iwanicz-Drozdowska, E. Laitinen & A. Suvas. 2017. Financial Distress Prediction in an International Context: A Review and Empirical Analysis of Altman’s Z Score Model. Journal of International Financial Management & Accounting 28(2): 131-171.

Alves, P. & M. Ferreira. 2011. Capital Structure and Law Around the World. Journal of Multinational Financial Management 21(3): 119-150.

Antão, P. & D. Bonfim. 2008. Capital Structure Decisions in the Portuguese Corporate Sector. Relatório de Estabilidade Financeira 2008: 187-206. Banco de Portugal, Lisbon, Portugal.

Antão, P. & D. Bonfim. 2012. The Dynamics of Capital Structure Decisions. Banco de Portugal Working Paper No. 6/2012, Lisbon, Portugal.

Antoniou, A., Y. Guney & K. Paudyal. 2008. The Determinants of Capital Structure: Capital Market- Oriented Versus Bank-Oriented Institutions. Journal of Financial and Quantitative Analysis 43(1): 59-92.

Augustin, P., H. Boustanifar, J. Breckenfelder & J. Schnitzler. 2018. Sovereign to Corporate Risk Spillovers. Journal of Money, Credit and Banking 50(5): 857-891.

Augusto, F. & M. Mateus. 2021. Portuguese Firms’ Financial Vulnerability and Excess Debt in the Context of the COVID-19 Shock. Banco de Portugal Economic Studies 7(1): 43-77.

Barbosa, L. & P. Pinho. 2016. Structure of Corporate Funding. Working paper, Banco de Portugal, Lisbon, Portugal.

Bedendo, M. & P. Colla. 2015. Sovereign and Corporate Credit Risk: Evidence from the Eurozone. Journal of Corporate Finance 33: 34-52.

Begenau, J. & J. Salomao. 2019. Firm Financing over the Business Cycle. Review of Financial Studies 32(4): 1235-1274.

Belenzon, S., T. Berkovitz & L. Rios. 2013. Capital Markets and Firm Organization: How Financial Development Shapes European Corporate Groups. Management Science 59 (6): 1326-1343.

Bernanke, B. & M. Gertler. 1995. Inside the Black Box: The Credit Channel of Monetary Policy Transmission. Journal of Economic Perspectives 9(4): 27-48.

Bernanke, B. 2018. The Real Effects of Disrupted Credit Evidence from the Global Financial Crisis. Brookings Papers on Economic Activity, The Brookings Institution.

Bhamra, H., L.-A. Kuehn & I. Strebulaev. 2010. The Aggregate Dynamics of Capital Structure and Macroeconomic Risk. Review of Financial Studies 23(12): 4187-4241.

Bharath, S., P. Pasquariello & G. Wu. 2009. Does Asymmetric Information Drive Capital Structure Decisions? Review of Financial Studies 22(8): 3211-3243.

Blundell, R. & S. Bond. 1998. Initial Conditions and Moment Restrictions in Dynamic Panel Data Models. Journal of Econometrics 87(1): 115–143.

Blundell-Wignall, A. 2012. Solving the Financial and Sovereign Debt Crisis in Europe. OECD Journal: Financial Market Trends 2011(2): 1-23.

Boot, A. & A. Thakor. 2011. Managerial Autonomy, Allocation of Control Rights, and Optimal Capital Structure. Review of Financial Studies 24(10): 3434-3485.

Bornhorst, F. & M. Ruiz-Arranz. 2015. Indebtedness and Deleveraging in the Euro Area. In P. K. Brooks & M. Pradhan, Editors. The Mechanics of a Strong Euro Area, IMF Policy Analysis, Chapter 2: 25-48. International Monetary Fund, Washington (D.C.), USA.

Bouis, R., A. Christensen & B. Cournède. 2013. Deleveraging: Challenges, Progress and Policies. OECD Economics Department Working Papers, No. 1077, OECD Publishing.

Braun, M. & B. Larrain. 2005. Finance and the Business Cycle: International Inter-industry Evidence. Journal of Finance 60(3): 1097-1128.

Bris, A., I. Welch, I. & N. Zhu. 2006. The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization. Journal of Finance 61(3): 1253-1303.

Brotherson, W., K. Eades, R. Harris & R. Higgins. 2013. “Best Practices” in Estimating the Cost of Capital: An Update. Journal of Applied Finance 23(1): 1–19.

Bulow, J., C. Reinhart, K. Rogoff & C. Trebesch. 2020. The Debt Pandemic. Finance & Development (September): 12-16.

Buttiglione, L., P. Lane, L. Reichlin & V. Reinhart. 2014. Deleveraging? What Deleveraging? Geneva Reports on the World Economy No. 16, International Center for Monetary and Banking Studies, Centre for Economic Policy Research, London, UK.

Byoun, S. 2008. How and When Do Firms Adjust Their Capital Structures toward Targets? Journal of Finance 63(6): 3069-3096.

Campbell, K. & M. Jerzemowska. 2001. Capital Structure Decisions Made by Companies in a Transitional Economy: The Case of Poland. In D. Zarzecki, Editor. Financial Management. Objectives – Organization – Tools. Warszawa: Fundacja Rozwoju Rachunkowości w Polsce: 51- 76.

Campello, M. & E. Giambona. 2013. Real Assets and Capital Structure. Journal of Financial and Quantitative Analysis 48(5): 1333-1370.

Caselli, S., G. Gandolfi & M. Soana. 2016. The Impact of Sovereign Rating News on European Banks. European Financial Management 22(1): 142-167.

Chaney, T., D. Sraer & D. Thesmar. 2012. The Collateral Channel: How Real Estate Shocks Affect Corporate Investment. American Economic Review 102(6): 2381-2409.

Chow, G. 1960. Tests of Equality Between Sets of Coefficients in Two Linear Regressions. Econometrica 28(3): 591–605.

Claessens, S. & L. Klapper. 2005. Bankruptcy around the World: Explanations of Its Relative Use. American Law and Economics Review 7(1): 253-283.

Cook, D. & T. Tang. 2010. Macroeconomic Conditions and Capital Structure Adjustment Speed. Journal of Corporate Finance 16(1): 73-87.

Cour-Thimann, P. & B. Winkler. 2012. The ECB’s Non-standard Monetary Policy Measures: The Role of Institutional Factors and Financial Structure. Oxford Review of Economic Policy 28(4): 765-803.

Covas, F. & W. Den Haan. 2011. The Cyclical Behavior of Debt and Equity Finance. American Economic Review 101: 877-899.

Cronqvist, H. & M. Nilsson. 2005. The Choice Between Rights Offerings and Private Equity Placements. Journal of Financial Economics 78: 375-407.

Crouzet, N. 2018. Aggregate Implications of Corporate Debt Choices. Review of Economic Studies 85(3):1635-1682.

Cuerpo, C., I. Drumond, J. Lendvai, P. Pontuch & R. Raciborski. 2015. Private Sector Deleveraging in Europe. Economic Modelling 44: 372-383.

Cwynar, A., W. Cwynar, P. Oratowski & M. Stachowicz. 2016. Corporate Capital Structure Determinants over the Latest Global Crisis: The Case of Poland. Modern Management Review 21(23): 23-50.

Damodaran, A. 2011. Applied Corporate Finance, 3rd Edition. New Jersey: John Wiley & Sons. Dang, V., M. Kim & Y. Shin. 2014. Asymmetric Adjustment Toward Optimal Capital Structure: Evidence from A Crisis. International Review of Financial Analysis 33: 226-242.
Danis, A., D. Rettl & T. Whited 2014. Refinancing, Profitability, and Capital Structure. Journal of Financial Economics 114(3): 424-443.
De Miguel, A. & J. Pindado. 2001. Determinants of Capital Structure: New Evidence from Spanish

Panel Data. Journal of Corporate Finance 7(1): 77-99.
DeAngelo, H. & R. Masulis. 1980. Optimal Capital Structure under Corporate and Personal Taxation. Journal of Financial Economics 8(1): 3-29.
DeAngelo, H. & R. Roll. 2015. How Stable Are Corporate Capital Structures? Journal of Finance 70(1): 373-418.
DeAngelo, H., A. Goncalves & R. Stulz. 2018. Corporate Deleveraging and Financial Flexibility. Review of Financial Studies 31(8): 3122-3174.
Dell’Ariccia, G., E. Detragiache & R. Rajan. 2008. The Real Effect of Banking Crises. Journal of Financial Intermediation 17(1): 89-112.
DeMarzo, P. 2019. Presidential Address: Collateral and Commitment. Journal of Finance 74(4): 1587-1619.
Demirgüç-Kunt, A. & R. Levine. 1999. Bank-Based and Market-Based Financial Systems: Cross-

Country Comparisons. Policy Research Working Paper No. 2143, The World Bank Development Research Group.

Which Determinants Matter for Capital Structure? 58 Evidence from Polish and Portuguese Nonfinancial Firms

Dimson, E., P. Marsh & M. Staunton. 2017. Credit Suisse Global Investment Returns Yearbook 2017. Credit Suisse Research Institute.

D’Mello, R. & J. Farhat. 2008. A Comparative Analysis of Proxies for an Optimal Leverage Ratio. Review of Financial Economics 17(3): 213-227.

Dobbs, R., S. Lund, J. Woetzel & M. Mutafchieva. 2015. Debt and (Not Much) Deleveraging. McKinsey Global Institute, McKinsey & Company.

Dudley, E. 2012. Capital Structure and Large Investment Projects. Journal of Corporate Finance 18: 1168-1192.

Ellul, A. 2009. Control Motivations and Capital Structure Decisions. Social Science Research Network Electronic Journal. DOI:

Elsas, R. & D. Florysiak. 2011. Heterogeneity in the Speed of Adjustment toward Target Leverage. International Review of Finance 11 (2): 181-211.

Erel, I., B. Julio, W. Kim & M. Weisbach. 2012. Macroeconomic Conditions and Capital Raising. Review of Financial Studies 25(2): 341-376.

European Central Bank. 2012. Corporate Indebtedness in the Euro Area. ECB Monthly Bulletin (February): 87-103.

European Central Bank. 2017. Private Sector Indebtedness and Deleveraging in the Euro Area Countries. ECB Economic Bulletin (Issue 4): 55-60.

European Commission. 2013a. Drivers of Diverging Financing Conditions Across Member States. Quarterly Report on the Euro Area 12(1): 19-25.

European Commission. 2013b. Assessing the Private Sector Deleveraging Dynamics. Quarterly Report on the Euro Area 12(1): 26-32.

European Systemic Risk Board. 2020. ESRB Risk Dashboard, 1 December 2020. European Central Bank.

Fama, E. & K. French. 1997. Industry Costs of Equity. Journal of Financial Economics 43(2): 153- 193.

Fama, E. & K. French. 2005. Financing Decisions: Who Issues Stock? Journal of Financial Economics 76(3):549-582.

Faulkender, M., M. Flannery, K. Hankins & J. Smith. 2012. Cash Flows and Leverage Adjustments. Journal of Financial Economics 103 (3): 632-646.

Flannery, M. & K. Hankins. 2013. Estimating Dynamic Panel Models in Corporate Finance. Journal of Corporate Finance 19(1): 1-19.

Flannery, M. & K. Rangan. 2006. Partial Adjustment toward Target Capital Structures. Journal of Financial Economics 79(3): 469-506.

Fluck, Z. 2000. Capital Structure Decisions in Small and Large Firms: A Life-Cycle Theory of Financing. NYU Working Paper No. FIN-00-028. SSRN:

Foley-Fisher, N., R. Ramcharan & E. Yu. 2016. The Impact of Unconventional Monetary Policy on Firm Financing Constraints: Evidence from the Maturity Extension Program. Journal of Financial Economics 122(2): 409-429.

François, P. & E. Morellec. 2004. Capital Structure and Asset Prices: Some Effects of Bankruptcy Procedures. Journal of Business 77(2): 387-411.

Frank, M. & V. Goyal. 2009. Capital Structure Decisions: Which Factors Are Reliably Important? Financial Management 38(1):1-37.

Franks, J. & C. Mayer. 1997. Corporate Ownership and Control in the U.K., Germany, and France. Journal of Applied Corporate Finance 9: 30-45.

Gennaioli, N., A. Martin & S. Rossi. 2014. Sovereign Default, Domestic Banks, and Financial Institutions. Journal of Finance 69(2): 819-866.

Gilchrist, S. & E. Zakrajšek. 2012. Credit Spreads and Business Cycle Fluctuations. American Economic Review 102(4): 1692-1720.

Gilchrist, S., D. López-Salido & E. Zakrajšek. 2015. Monetary Policy and Real Borrowing Costs at the Zero Lower Bound. American Economic Journal: Macroeconomics 7(1): 77-109.

Graham, J. & C. Harvey. 2001. The Theory and Practice of Corporate Finance: Evidence from the Field. Journal of Financial Economics 60(2-3): 187-243.

Graham, J. & M. Leary. 2011. A Review of Empirical Capital Structure Research and Directions for the Future. Annual Review of Financial Economics 3: 309-345.

Graham, J. 2008. Taxes and Corporate Finance. In B. E. Eckbo, Editor. The Handbook of Corporate Finance, Vol. 2, Chapter 11: 59-133. Elsevier, Amsterdam, Netherlands.

Graham, J., M. Leary & M. Roberts. 2014. How Does Government Borrowing Affect Corporate Financing and Investment? NBER Working Papers No. 20581, National Bureau of Economic Research.

Graham, J., M. Leary & M. Roberts. 2015. A Century of Capital Structure: The Leveraging of Corporate America. Journal of Financial Economics 118(3): 658-683.

Gross, C. & P. Siklos. 2018. Analyzing Credit Risk Transmission to the Nonfinancial Sector in Europe: A Network Approach. Working Paper Series, No 78 / July, European Systemic Risk Board, European System of Financial Supervision.

Hackbarth, D., J. Miao & E. Morellec. 2006. Capital Structure, Credit Risk, and Macroeconomic Conditions. Journal of Financial Economics 82(3): 519-50.

Hall, T. 2012. The Collateral Channel: Evidence on Leverage and Asset Tangibility. Journal of Corporate Finance 18 (3): 570-583.

Halov, N. & F. Heider. 2011. Capital Structure, Risk and Asymmetric Information. Quarterly Journal of Finance 1(4): 767-809.

Hamada, R. 1972. The Effect of the Firm’s Capital Structure on the Systematic Risk of Common Stocks. Journal of Finance 27(2): 435–452.

Hartwell, C. & A. Malinowska. 2018. Firm-Level and Institutional Determinants of Corporate Capital Structure in Poland: New Evidence from the Warsaw Stock Exchange. Czech Journal of Economics and Finance 68(2): 120- 143.

Heinkel, R. 1982. A Theory of Capital Structure Relevance under Imperfect Information. The Journal of Finance 37: 1141-1150.

Holderness, C. 2003. A Survey of Blockholders and Corporate Control. Economic Policy Review 9 (Apr): 51-64. Holderness, C. & D. Sheehan. 1988. The Role of Majority Shareholders in Publicly Held Corporations: An Exploratory Analysis. Journal of Financial Economics 20: 317-346.
Huang, R. & J. Ritter. 2009. Testing Theories of Capital Structure and Estimating the Speed of Adjustment. Journal of Financial and Quantitative Analysis 44(2): 237-271.
Ippolito, F., A. Ozdagli & A. Perez-Orive. 2018. The Transmission of Monetary Policy Through Bank Lending: The Floating Rate Channel. Journal of Monetary Economics 95: 49-71.
Jensen, M. & W. Meckling. 1976. Theory of the Firm: Managerial Behavior, Agency Costs andOwnership Structure. Journal of Financial Economics 3(4): 305-360.
Kahl, M. 2002. Economic Distress, Financial Distress, and Dynamic Liquidation. Journal of Finance 57(1): 135-168. Kale, J., T. Noe & G. Ramirez. 1991. The Effect of Business Risk on Corporate Capital Structure: Theory and Evidence. Journal of Finance 46(5): 1693-1715.
Kalemli-Ozcan, S., B. Sorensen & S. Yesiltas. 2012. Leverage Across Firms, Banks, and Countries. Journal of International Economics 88: 284-298.
Kalemli-Özcan, S., L. Laeven & D. Moreno. 2019. Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis. Working Paper Series, No 2241 / February 2019, European Central Bank. Kayhan, A. & S. Titman. 2007. Firms’ Histories and Their Capital Structures. Journal of Financial Economics 83(1): 1-32.
Korajczyk, R. & A. Levy. 2003. Capital Structure Choice: Macroeconomic Conditions and Financial Constraints. Journal of Financial Economics 68(1): 75-109.
Kose, M. A., P. Nagle, F. Ohnsorge & N. Sugawara. 2020. Global Waves of Debt Causes and Consequences.

International Bank for Reconstruction and Development / The World Bank, Washington (D.C.), USA. La Porta, R., F. Lopez-de-Silanes & A. Shleifer. 1999. Corporate Ownership Around the World.

Journal of Finance 54(2): 471–517.
La Porta, R., F. Lopez-de-Silanes & A. Shleifer. 2008. The Economic Consequences of Legal Origins. Journal of Economic Literature 46(2): 285–332.
Leary, M. & M. Roberts. 2005. Do Firms Rebalance Their Capital Structures? Journal of Finance 60(6): 2575-2619.
Leland, H. 1998. Agency Costs, Risk Management, and Capital Structure. Journal of Finance 53(4): 1213-1243. Leland, H. & D. Pyle. 1977. Informational Asymmetries, Financial Structure, and Financial Intermediation. The Journal of Finance 32(2): 371-387
Lemmon, M. & J. Zender. 2019. Asymmetric Information, Debt Capacity, and Capital Structure.

Journal of Financial and Quantitative Analysis 54(1): 31-59.
Lemmon, M., M. Roberts & J. Zender. 2008. Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure. Journal of Finance 63(4): 1575-1608.
Li, K. & N. Prabhala. 2007. Self-Selection Models in Corporate Finance. In B. E. Eckbo, Editor.

Handbook of Empirical Corporate Finance, Chapter 2: 37-86. Elsevier, San Diego (CA), USA. MacKay, P. & G. Phillips. 2005. How Does Industry Affect Firm Financial Structure? Review of Financial Studies 18(4): 1433-1466.
Mehrotra, V., W. Mikkelson & M. Partch. 2005. Do Managers Have Capital Structure Targets?

Evidence from Corporate Spinoffs. Journal of Applied Corporate Finance 17(1): 18-25.
Morellec, E., B. Nikolov & N. Schürhoff. 2018. Agency Conflicts Around the World. Review ofFinancial Studies 31(11): 4232-4287.

Myers, S. & N. Majluf, 1984. Corporate Financing and Investment Decisions When Firms HaveInformation that Investors Do Not Have. Journal of Financial Economics 13(2): 187-221.

Myers, S. 1984. The Capital Structure Puzzle. Journal of Finance 39(3): 575-592.
Nehrebecka, N. & A. Dzik-Walczak. 2018. The Dynamic Model of Partial Adjustment of the Capital Structure. Meta-Analysis and a Case of Polish Enterprises. Zbornik radova Ekonomskog fakulteta u Rijeci 36(1): 55-81. Ovtchinnikov, A. 2010. Capital Structure Decisions: Evidence from Deregulated Industries. Journal of Financial Economics 95(2): 249-274.
Öztekin, Ö. 2015. Capital Structure Decisions around the World: Which Factors Are ReliablyImportant? Journal of Financial and Quantitative Analysis 50(3): 301-323.
Öztekin, Ö. & M. Flannery. 2012. Institutional Determinants of Capital Structure Adjustment Speeds. Journal of Financial Economics 103(1): 88-112.
Parsons, C. & S. Titman. 2008. Empirical Capital Structure: A Review. Foundations and Trends® in Finance 3(1): 1-93.
Rajan, R. 2020. How Much Debt Is Too Much? Project Syndicate, accessed on December 22nd, 2020. Rampini, A. & S. Viswanathan. 2013. Collateral and Capital Structure. Journal of Financial Economics 109(2): 466-492.
Roberts, M. & T. Whited. 2013. Endogeneity in Empirical Corporate Finance. In G. Constantinides, M. Harris, and R. Stulz, Editors. Handbook of the Economics of Finance, Vol. 2, chapter 7: 493–572. Elsevier, Amsterdam, Netherlands.
Ross, S. 1977. The Determination of Financial Structure: The Incentive-Signalling Approach. The Bell Journal of Economics 8(1): 23-40.
Roxburgh, C., S. Lund, T. Daruvala, J. Manyika, R. Dobbs, R. Forn & K. Croxson. 2012. Debt and Deleveraging: Uneven Progress on the Path to Growth. McKinsey Global Institute.
Roxburgh, C., S. Lund, T. Wimmer, E. Amar, C. Atkins, J.-H. Kwek, R. Dobbs & J. Manyika. 2010. Debt and Deleveraging: The Global Credit Bubble and its Economic Consequences. McKinsey. Ruscher, E. & G. Wolff. 2013. Corporate Balance Sheet Adjustment: Stylized Facts, Causes and Consequences. Review of Economics 64(2): 1-21.
Senbet, L. & J. Seward. 1995. Financial Distress, Bankruptcy and Reorganization. In R. Jarrow, I. Maksimovic and V. Ziemba, Editors. Handbooks in Operations Research and Management Science, Vol. 9: 921-961. Elsevier Science, Amsterdam, Netherlands.

Serrasqueiro, Z. & M. Rogão. 2009. Capital Structure of Listed Portuguese Companies: Determinants of Debt Adjustment. Review of Accounting and Finance 8(1): 54-75.

Teixeira, G. & M. Coutinho dos Santos. 2014. Do Firms Have Financing Preferences Along Their Life Cycles? Evidence from Iberia. DOI:

Wiesiołek, P. & D. Tymoczko. 2015. The Evolution of Banking Sectors in Central and Eastern Europe – The Case of Poland. In Bank for International Settlements, Editor. What Do New Forms of Finance Mean for EM Central Banks? vol. 83: 313-324.

Zhou, Q., K. Tan, R. Faff & Y. Zhu. 2016. Deviation from Target Capital Structure, Cost of Equity and Speed of Adjustment. Journal of Corporate Finance 39: 99-120.

Zhu, Y. & X. Zhu. 2014. European Business Cycles and Stock Return Predictability. Finance Research Letters 11(4): 446-453.

© Copyright CICEE 2023. All rights reserved

Back To Top