The Impact of Financial Reform on Slovak Firms’ Corporate Capital Structure
The Impact of Financial Reform on Slovak Firms’ Corporate Capital Structure

Summary/Abstract: This paper focuses on the capital structure of Slovak firms and the influence of financial market imperfections on their leverage. We hypothesise that the distorted, low supply of bank debt in the late 1990´s was a major imperfection affecting capital structure. The importance of this imperfection was enhanced by the major role of bank debt in transition economies’ financing. Consequently the 1999 banking reform aimed at increasing the supply of funds. This paper uses annual observations from 1996 to 2004 on a sample of over 1.000 non-financial firms to explore variations in financial structure over time. A survey of the capital structure literature leads to an empirical model of the major determinants of leverage. The data is split into two sub-periods; 1996 – 2000 and 2001 – 2004, to test the hypothesis that the bank reforms changed key firm characteristics. The theoretical predictions are confirmed, and size, inter-enterprise debt and asset tangibility emerge as important factors.

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