Prague Economic Papers 2003, 12(3):233-248 | DOI: 10.18267/j.pep.216

Informative value of firm capital structure

Patrik Bauer1, Vít Bubák2
1 Institute of Economic Studies, Charles University, Opletalova 26, CZ - 110 00 Prague 1, IDET, Department of Economics, LMU, Munich, Germany (e-mail: Patrik.Bauer@seznam.cz).
2 Institute of Economic Studies, Charles University, Opletalova 26, CZ - 110 00 Prague 1 (e-mail: VitBubak@hotmail.com).

In this paper, the informative value of firm capital structure is analyzed. In the first part, a theoretical background regarding capital structure theories is presented. In the second (empirical) part, the Ohlson (1995) valuation framework is used in order to analyze the informative value of firm capital structure on a sample of data for the Czech (non-financial) companies. A contextual approach is adopted and the value relevance of debt is analyzed considering the signalling and the optimal capital structure theories. According to the results and in accordance with the optimal capital structure theory, debt is more penalized in case of the companies that deviate from the target debt level. Moreover, debt proves to be a positive signal for the firms with a higher earnings growth potential. This, in turn, is consistent with the signalling theory.

Keywords: conditional capital structure theories, Ohlson valuation model, optimal capital structure theory, signalling theory
JEL classification: G10, G32

Published: January 1, 2003  Show citation

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Bauer, P., & Bubák, V. (2003). Informative value of firm capital structure. Prague Economic Papers, 12(3), 233-248. doi: 10.18267/j.pep.216
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