Foreign-owned companies in countries with an unstable economy: The case of the automotive industry in Russia

Spitsin, Vladislav; Михальчук, А. А.; Spitsina, Lubov; Vuković, Darko

doi:10.14254/2071-8330.2018/11-3/5

Cited by 6 publications

(9 citation statements)

References 37 publications

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“…Studies of the impact of the share of borrowed capital on the profitability of enterprises in different countries and in different industries give contradictory results. A number of works confirm the negative relationship (Kester, 1986;Rajan and Zingales, 1994;Chakraborty, 2010;Sial and Chaudhry, 2012;Gonz alez, 2013;Ngoc Vy, 2016;Vu and Phan, 2016;Habrosh, 2017;Spitsin et al, 2018), Company performance and optimal capital structure which is consistent with Pecking Order Theory as because higher returns increase the potential for profit retention and reduce the need for borrowing. At the same time, a number of papers (Roden and Lewellen, 1995;Abor, 2005;Chatterjee, 2012;Ajibolade and Sankay, 2013;Negasa, 2013;Jain et al, 2017;Vaicondam and Ramakrishnan, 2017) revealed a positive effect that confirms Static Trade-off Theory.…”

Section: Introductionsupporting

confidence: 60%

“…Existing studies are inconclusive with respect to the effect of borrowed capital on profitability, and there are substantial differences in this relationship across countries and industries. Many studies suggest the negative relationship (Kester 1986;Rajan and Zingales, 1994;Chakraborty, 2010;Sial and Chaudhry, 2012;Gonz alez, 2013;Ngoc Vy, 2016;Vu and Phan, 2016;Habrosh, 2017;Spitsin et al, 2018). At the same time, other papers (Roden and Lewellen, 1995;Abor, 2005;Chatterjee, 2012;Ajibolade and Sankay, 2013; Company performance and optimal capital structure Negasa, 2013;Jain et al, 2017;Vaicondam and Ramakrishnan, 2017) revealed a positive effect.…”

Section: 4mentioning

confidence: 99%

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Company performance and optimal capital structure: evidence of transition economy (Russia)

Spitsin

Vuković

Anokhin

et al. 2020

JES

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PurposeThe paper analyzes the effects of the capital structure on company performance (return on assets). The analysis is conducted in a large sample of high-tech manufacturing and service companies in the transition economy (Russian Federation). In addition to the aggregated analysis, separate investigations are conducted to scrutinize the impact of company age, size and location factors (the effects of agglomerations). This research postulates the existence and variability of the optimal capital structure and its dependence on economic crisis.Design/methodology/approachWe utilized a large sample that includes 1,826 enterprises over the period from 2013 to 2017. The estimation was performed using the panel-corrected standard error estimation technique (Prais–Winsten regression) to account for the panel nature and distributional properties of our data. The existence of the optimal capital structure was assessed based on a curvilinear (quadratic) function.FindingsThe results are consistent with the Static Trade-off Theory and show that this theory is applicable to countries with transition economy. They demonstrate that effective management of the capital structure can increase return on assets by 16–22%. The optimal share of borrowed capital is higher for small businesses compared to larger ones and for enterprises located in agglomerations compared to those located in other regions. A greater increase in profitability can be achieved by larger firm companies compared to smaller ones. High share of borrowed capital leads to negative profitability, i.e. to losses by enterprises. No significant differences in profitability growth were identified between young and mature enterprises. The optimal share of borrowed capital that maximizes return on assets is in the range of 0–21%.Research limitations/implicationsDue to the SPARK policies, our access to the data has been limited to a five-year window, which imposed certain limitations on the choice of econometric methods we could have employed and somewhat limited our ability to contrast the effect of the crisis period with the period of stability. In this sense, although our results pertaining to the effect of the crisis could be treated as conservative, future research should consider extending the panel to include more years into consideration.Practical implicationsWe identified significant differences between optimal capital structures and actual capital structures for high-tech enterprises. The contribution of this study is that the calculations were made for a country with a transition economy under crisis conditions. Countries with transition economies and developing countries tend to be characterized by a high level of interest rates on loans and a high proportion of borrowed capital in total assets. This poses difficulties for companies relying on borrowed capital to finance their operations. At the same time, our results demonstrate that in transition economies, enterprises in high-tech industries do have an optimal capital structure that allows maximizing firm performance. That is, Static Trade-off Theory is applicable to transition economies characterized by high interest rates on loans.Originality/valueThe novelty of this study lies in the detailed analysis of high-tech industries in Russian Federation. This analysis makes use of sophisticated econometric techniques for the first time in this context.

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Section: Introductionsupporting

confidence: 60%

Section: 4mentioning

confidence: 99%

Company performance and optimal capital structure: evidence of transition economy (Russia)

Spitsin

Vuković

Anokhin

et al. 2020

JES

Self Cite

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“…Foreign investments are the source of investments in a national economy and they present an indicator of readiness of domestic firms to adopt foreign technologies (Spitsin, Mikhalchuk, Spitsina and Vukovic, 2018).…”

Section: Discussionmentioning

confidence: 99%

Education, technological changes and economic development of Bosnia and Herzegovina

Popović

Erić

Stanić

et al. 2019

IJCRSEE

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Accumulation of knowledge, the role of education and innovations in the stimulation of economic development are important for understanding the endogenous theory of growth. The aim of this paper is to determine the strength and direction of relations between independent variables of education, technological development, innovations, foreign investments and the economic growth of Bosnia and Herzegovina (B&H). The relations between variables are assessed by multiple regression analysis for the period 2005 - 2017. GDP per capita (pc), as a measure of general wellbeing and economic development is a dependent variable of the regression model. Education Years Average, Technological readiness and Innovations are explanatory variables, whereas Foreign investments and Macroeconomic environment are control variables. The results indicate statistical significance of variables Education Years Average, Technological readiness and Innovations. The first two variables indicate a positive effect on the economic development, whereas Innovations have a negative effect on the economic development. The control variables are statistically insignificant. Therefore, more investment is recommended in the field of education, science and research. Institutions should be more developed and scientific-research systems should be harmonized with the European Union. It is the only way for B&H to be able to respond to global challenges when it comes to competitiveness, export and the GDP growth. Examples and experiences of this country can be useful for research activities in similar post-transition countries.

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“…N. Berger & Bonaccorsi di Patti, 2006;Jain, Bhargava, & Bhargava, 2017;Masulis, 1983;Vaicondam & Ramakrishnan, 2017). However, debt increases a company's risk of bankruptcy, has an adverse impact on the company, and reduces the company's performance, which is manifested as a negative relationship between capital structure and operating performance (Chakraborty, 2010;Friend & Lang, 1988; V. M. González, 2013;Kester, 1986;Ngoc Vy, 2016;Rajan & Zingales, 1995;Sial & Chaudhry, 2012;Spitsin, Mikhalchuk, Spitsina, & Vukovic, 2018;Tong & Green, 2005;M. C. VU & Phan, 2016;Habrosh, 2017).…”

Section: Related Research On Capital Structure Theorymentioning

confidence: 99%

Does ownership structure affect the optimal capital structure? A PSTR model for China

Yao

Zhou

2020

Int. J Fin Econ

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In the context of Chinese enterprises' privatization reforms, the relationships between ownership structure and optimal capital structure and between ownership structure and firm performance are worth attention. Using data on listed companies in China, this article uses the panel smooth transfer regression (PSTR) model and multiple regression models to test the nonlinear relationship between capital structure and firm performance. The optimal capital structure is calculated using the partial correlation function of the PSTR model, and the ownership structure-optimal capital structure relationship is analysed. This research found that (a) the effect of the debt-to-asset ratio on firm performance shows a nonlinear relationship with sudden changes in characteristics, and a debt-to-asset ratio interval exists that can significantly improve firm performance; (b) under the premise of the effect of ownership checks and balances, an increase in ownership concentration can improve the optimal capital structure; thus, enterprises can achieve effective operations with higher debt; (c) the promotion effect of ownership concentration on firm performance varies depending on a company's debt-to-asset ratio; and (d) different industries have different optimal capital structures. The raw materials industry has a high optimal capital structure. A series of robustness tests verify the robustness of these conclusions. This research enriches the theoretical interpretation of the optimal capital structure and provides new insights into the relationship between ownership structure and firm performance. The conclusions drawn by this article are helpful to enterprises making corresponding financial decisions and the government in formulating corresponding capital market systems.

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Foreign-owned companies in countries with an unstable economy: The case of the automotive industry in Russia

Cited by 6 publications

References 37 publications

Company performance and optimal capital structure: evidence of transition economy (Russia)

Company performance and optimal capital structure: evidence of transition economy (Russia)

Education, technological changes and economic development of Bosnia and Herzegovina

Does ownership structure affect the optimal capital structure? A PSTR model for China

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