Capital structures in emerging stock markets: The case of Hungary

This paper studies developments in the Hungarian capital markets during 1992-95 and investigates the determinants of the capital structures of companies listed on the Budapest Stock Exchange. Hungarian companies had very low leverage ratios. Empirical findings indicate that the negative relationship between leverage and proportion of tangible assets was primarily caused by the lack of long-term debt financing. The relationship between leverage and the size of the company provides some indication of the importance of trade credits for the companies. The more profitable companies had less debt than less profitable ones. This is attributed to the firms' financial incentives aggravated by the segmentation of Hungarian credit markets and credit rationing, within the financial environment. Manufacturing firms and firms with the state among, their major shareholders enjoyed higher levels of debt financing relative to other companies.