The Impact of CEO and Firm-Specific Characteristics on Capital Structure: Evidence from Romanian Firms

Abstract

This chapter explores the major drivers of capital structure, which is measured by using two alternative measures (total debt/equity and total debt/total assets), for Romanian firms. By employing panel-data models for a sample of non-financial companies publicly traded on the Bucharest Stock Exchange, this research examines how capital structure of the Romanian firms are affected by CEO age and several firm-specific characteristics including free cash flow, return on assets (ROA), return on invested capital (ROIC), effective tax rate, dividend payout ratio, cash ratio, current ratio, and quick ratio, where firm-level controls (total assets and firm age) are adopted. Using fixed effects estimation on panel data, we find: (1) ROIC, dividend payout ratio and liquidity ratios all negatively affect capital structure; (2) whereas ROA provides evidence of its mixed role on capital structure. Robustness checks using the generalized method of moments reinforce the negative impact of dividend payout ratio and the mixed influence of ROA, and document the varied effects of liquidity measures on capital structure.

Citation

Gherghina, Ş.C., Vintilă, G. and Toader, D.A. (2020), "The Impact of CEO and Firm-Specific Characteristics on Capital Structure: Evidence from Romanian Firms", Jeon, B.N. and Wu, J. (Ed.) Emerging Market Finance: New Challenges and Opportunities (International Finance Review, Vol. 21), Emerald Publishing Limited, Leeds, pp. 231-250. https://doi.org/10.1108/S1569-376720200000021013