Determining the Influence of Internal Factors on Indebtedness
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Abstract
Indebtedness and its level are one of the most important indicators of the healthy operation of every company. In this study, the authors deal with the analysis of the influence of certain selected internal factors on the level of indebtedness of agricultural enterprises in Serbia. Only large agricultural enterprises were taken as a sample, and the sample itself includes 5702 observations and 87 companies. The subject of the analysis is the annual panel data of large agricultural companies, and the analysis period covers from 2015 to 2021. In the analysis, the authors used the debt-to-asset indicator as a representative of the company's indebtedness, and it represents the only dependent variable. As independent variables, the authors used indicators of general liquidity, return on capital, return on assets, EBIT level, and equity level. The authors used several diagnostic tests to establish the validity of the regression model. To obtain the results, the authors used the POLS model, the fixed effects model, and the random effects model to determine the influence of independent variables on indebtedness. The results indicated the statistical significance and negative impact of indicators of general liquidity, return on capital, and the level of own capital on the level of indebtedness. The contribution of this paper is that it provides an insight into the relationship of certain internal factors to indebtedness, as well as helps in determining the best level of the relationship between the use of debt and own funds in the financing of the company.
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References
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Salim, M. N., & Susilowati, R. (2019). The Effect of Internal Factors on Capital Structure and Its Impact on Firm Value: Empirical Evidence From The Food and Beverages Industry Listed on Indonesia Stock Exchange 2013-2017. International Journal of Engineering Technologies and Management Research, 6(7), 173-191.
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Sun, W., Geng, D., & Dong, K. (2021). State of demand and excessive indebtedness: Evidence from Chinese listed manufacturing firms. Finance Research Letters, 42, 1-7. https://doi.org/10.1016/j.frl.2021.101942
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Alin, A. (2010). Multicollinearity. Wiley interdisciplinary reviews: computational statistics, 2(3), 370-374.
Avdjiev, S., McGuire, P., & von Peter, G. (2020). International dimensions of EME corporate debt. BIS Quarterly Review, June, 1-13.
Badoer, D. C., & James, C. M. (2016). The determinants of long‐term corporate debt issuances. The Journal of Finance, 71(1), 457-492.
Bilgin, R. Relative Importance of Country and Firm-specific Determinants of Capital Structure, A Multilevel Approach. (2019). Prague Economic Papers, 28 (5), 499-515. https://doi.org/10.18267/j.pep700
Buvanendra, S., Sridharan, P., & Thiyagarajan, S. (2016). Role of country-specific factors on capital structure decision—evidence from Sri Lankan listed firms. Global Business Review, 17(3), 582–593. https://doi.org/10.1177/0972150916630454
Ćurčić, M., Todorović, V., Dakić, P., Ristić, K., Bogavac, M., Špiler, M., & Rosić, M. (2021). Economic potential of agro-food production in the Republic of Serbia. Економика пољопривреде, 68(3), 687-700.
De Fiore, F., & Uhlig, H. (2015). Corporate debt structure and the financial crisis. Journal of Money, credit and Banking, 47(8), 1571-1598.
Đukić, S., Tomaš-Simin, M., & Glavaš-Trbic, D. (2017). The competitiveness of Serbian agro-food sector. Economics of Agriculture, 64(2), 723-737.
Fan, J., Zhang, C., & Zhang, J. (2001). Generalized likelihood ratio statistics and Wilks phenomenon. The Annals of statistics, 29(1), 153-193.
Fenyves, V., Pető, K., Szenderák, J., & Harangi-Rákos, M. (2020). The capital structure of agricultural enterprises in the Visegrad countries. Agricultural Economics, 66(4), 160-167.
Ghasemi, M., & Ab Razak, N. H. (2016). The impact of liquidity on the capital structure: Evidence from Malaysia. International journal of economics and finance, 8(10), 130-139.
Gomez, G., Mena Rivas, A., & Lizarzaburu Bolanos, E. R. (2014). The determinants of capital structure in Peru. Academia Revista Latinoamericana de Administración, 27(3), 341-354.
Handoko, P. (2017). The Influence of Firm’s Size, Growth, and Profitability on Firm Value with Capital Structure as the Mediator: A Study on the Agricultural Firms Listed in the Indonesian Stock Exchange. International Journal of Economics and Finance, 9(8), 103-110.
Hang, M., Geyer-Klingeberg, J., Rathgeber, A.W., & Stock, S. (2018). Measurement matters – A meta-study of the determinants of corporate capital structure. The Quarterly Review of Economics and Finance, 68, 211-225. https://doi.org/10.1016/j.qref.2017.11.011
Haron, R. (2016). Do Indonesian firms practice target capital structure? A dynamic approach. Journal of Asia Business Studies, 10(3), 318-334.
Henning, J.I.F., Bougard, D.A., Jordaan, H., & Matthews, N. (2019). Factors Affecting Successful Agricultural Loan Applications: The Case of a South African Credit Provider. Agriculture, 9 (11), 1-15. https://doi.org/10.3390/agriculture9110243
Kaur, P., Singh, G., & Singh, S. (2016). Magnitude and determinants of indebtedness among farmers in rural Punjab. Indian Journal of Economics and Development, 12(1a), 241-250.
Kazmierska-Jozwiak, B., Marszałek, J., & Sekuła, P. (2015). Determinants of debt-equity choice–Evidence from Poland. EMAJ: Emerging Markets Journal, 5(2), 1-8.
Kučera, J., Vochozka, M., & Rowland, Z. (2021). The ideal debt ratio of an agricultural enterprise. Sustainability, 13(9), 4613.
Kurniawan, A. R., & Khafid, M. (2016). Factors Affecting The Quality of Profit In Indonesia Banking Companies. Jurnal Dinamika Akuntansi, 8(1), 30-38.
Lipson, M.L. & Mortal, S. (2009). Liquidity and capital structure. Journal of Financial Markets, 12 (4), 611-644. https://doi.org/10.1016/j.finmar.2009.04.002
Mukhibad, H., Subowo, S., Maharin, D. O., & Mukhtar, S. (2020). Determinants of debt policy for public companies in Indonesia. The Journal of Asian Finance, Economics and Business, 7(6), 29-37.
Mutl, J., & Pfaffermayr, M. (2011). The Hausman test in a Cliff and Ord panel model. The Econometrics Journal, 14(1), 48-76.
Masavi, J. M., Kiweu, J. M., & Kinyili, J. (2017). Capital structure and financial performance of agricultural companies listed in Nairobi securities exchange. International Journal of Economics, Commerce and Management, 5(11), 653-665.
Nazir, A., Azam, M., & Khalid, M.U. (2021). Debt financing and firm performance: empirical evidence from the Pakistan Stock Exchange. Asian Journal of Accounting Research, 6 (3), 324-334. https://doi.org/10.1108/AJAR-03-2019-0019
Parui, P. (2022). Corporate debt, endogenous dividend rate, instability and growth. Metroeconomica, 73(2), 514-549.
Patrick, K., Kuhns, R., & Borchers, A. (2016). Recent trends in U.S. farm income, wealth, and financial health. Choices The Magazine of Food Farm and Resource Issues, 31, 1-8. https://doi.org/10.22004/ag.econ.233751
Pesaran, M. H. (2012). On the interpretation of panel unit root tests. Economics Letters, 116(3), 545-546.
Rahman, M., Azma, N., Masud, M. A. K., & Ismail, Y. (2020). Determinants of indebtedness: Influence of behavioral and demographic factors. International Journal of Financial Studies, 8(1), 8.
Rebonato, R., & Jäckel, P. (2011). The most general methodology to create a valid correlation matrix for risk management and option pricing purposes. Available at SSRN 1969689, 1-12.
Rodrigues, S. V., de Moura, H. J., Santos, D. F. L., & Sobreiro, V. A. (2017). Capital structure management differences in Latin American and US firms after 2008 crisis. Journal of Economics, Finance and Administrative Science, 22(42), 51–74. https://doi.org/10.1108/JEFAS-01-2017-0008
Royer, J., & Mckee, G. (2020). Optimal capital structure in agricultural cooperatives and implications for equity retirement. Agricultural Finance Review, 81 (2), 277-291. https://doi.org/10.1108/AFR-03-2020-0044
Salehi, M., Lotfi, A., & Farhangdoust, S. (2017). The effect of financial distress costs on ownership structure and debt policy: An application of simultaneous equations in Iran. Journal of Management Development, 36(10), 1216-1229.
Salim, M. N., & Susilowati, R. (2019). The Effect of Internal Factors on Capital Structure and Its Impact on Firm Value: Empirical Evidence From The Food and Beverages Industry Listed on Indonesia Stock Exchange 2013-2017. International Journal of Engineering Technologies and Management Research, 6(7), 173-191.
SikvelandI, M., & Zhang, D. (2020). Determinants of capital structure in the Norwegian salmon aquaculture industry. Marine Policy, 119, 104061. https://doi.org/10.1016/j.marpol.2020.104061
Sun, W., Geng, D., & Dong, K. (2021). State of demand and excessive indebtedness: Evidence from Chinese listed manufacturing firms. Finance Research Letters, 42, 1-7. https://doi.org/10.1016/j.frl.2021.101942
Tobisova, A., Senova, A., & Rozenberg, R. (2022). Model for Sustainable Financial Planning and Investment Financing Using Monte Carlo Method. Sustainability, 14 (14), 1-18. https://doi.org/10.3390/su14148785
Valaskova, K., Kliestik, T., & Gajdosikova, D. (2021). Distinctive determinants of financial indebtedness: evidence from Slovak and Czech enterprises. Equilibrium. Quarterly Journal of Economics and Economic Policy, 16 (3), 639-659. https://doi.org/10.24136/eq.2021.023
Viera, E. S., Neves, M. E., & Dias, A. G. (2019). Determinants of Portuguese firms’ financial performance: panel data evidence. International Journal of Productivity and Performance Management, 68 (7), 1323-1342. https://doi.org/10.1108/ijppm-06-2018-0210
Vrbka, J., Kalinová, E., & Dvořáková, Z. (2022). Optimization of the capital structure of an agricultural company in the Czech Republic. In SHS Web of Conferences, 132, 01008
Waisman M., Ye P., Zhu Y. (2015), “The effect of political uncertainty on the cost of corporate debt”, Journal of Financial Stability, 16, 106-117, DOI: https://doi.org/10.1016/j.jfs.2015.01.002.