Impact Of Firm Specific Factors On Capital Structure Decision: An Empirical Study Of Albanian Firms

This paper attempts to explore the impact of firm specific factors on capital structure decision for a sample of 65 non-listed firms, which operate in Albania, over the period 2008-2011. In this paper are used three capital structure measures; short -term debt to total assets (STDA), long-term debt to total assets (LTDA) and total debt to total assets (TDTA) as dependent variables and four dependent variables: tangibility(TANG), liquidity (LIQ), profitability(ROA=return on assets) and size (SIZE). The investigation uses panel data procedure and the data are taken from balance sheets and include only accounting measures on the firm's leverage. This study found that tangibility (the ratio of fixed assets to total assets), liquidity (the ratio of current assets to current liabilities) profitability (the ratio of earnings after taxes to total assets) and size (natural logarithm of total assets) have a significant impact on leverage. Also empirical evidence reveals a significant negative relation of ROA to leverage and a significant positive relation of SIZE to leverage. And the second objective of this study is to identify the impact of industry classification on firm's leverage, using a dummy variable for the trade sector. So one of the hypothesis tested is if financial leverage is independent of industry classification. Results reveal that long term debt to total assets and total debt to total assets ratios are significantly different across Albanian industries.