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Modeling the optimal capital structure of industrial enterprises in Russia during the crisis

Vol. 25, Iss. 6, JUNE 2019

Received: 15 May 2019

Received in revised form: 29 May 2019

Accepted: 12 June 2019

Available online: 28 June 2019

Subject Heading: FINANCIAL CAPITAL

JEL Classification: C50, F23, G32, L60, O14

Pages: 1297–1313

https://doi.org/10.24891/fc.25.6.1297

Spitsyn V.V. National Research Tomsk Polytechnic University (TPU), Tomsk, Russian Federation
spitsin_vv@mail.ru

https://orcid.org/0000-0002-8360-7590

Subject The article addresses the issue of increasing the profitability of industrial enterprises through effective management of capital structure.
Objectives The study determines the optimal capital structure and models how it influences the profitability of Russia's industrial enterprises by ownership form, considering the instability of economic situation and national currency.
Methods I study enterprises operating in the leading process manufacturing sector of Russia, which have the Russian, foreign and mixed owners. The sample comprises 3,160 enterprises for 2012–2016. Based on fixed effects regression models, I determine the optimal share of borrowings reflecting the capital structure, and model its impact on net return on assets. I calculate the optimal share of borrowings using the quadratic function.
Results The article confirms that there can be found the optimal capital structure for each of the three ownership forms and opportunities for raising net return on assets of the capital stricture is effectively managed. A decrease in the national currency exchange rate is found to increase the optimal share of borrowings in the balance sheet, while an increase demonstrates the opposite trend. A considerable part of enterprises have the ineffective capital structure, thus lowering the profitability.
Conclusions and Relevance Owners of most Russian enterprises should try to reduce the share of borrowings. As part of its regulatory involvement, the government should undertake initiatives for decreasing interest rates on corporate loans, stimulating the development of other financial sources (in particular, the development of the stock market) and maintain the stable exchange rate of the national currency.

Keywords: capital structure, optimization, net return on assets, regression analysis

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