E-Knjižnica FET "Dr. Mijo Mirković"

Strategic accounting problem of capital gearing in Croatia

Škare, Marinko and Mošnja-Škare, Lorena (2002) Strategic accounting problem of capital gearing in Croatia. Zagreb international review of economics & business (5). pp. 23-37. ISSN 1331-5609

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Efficient financial governance of a company has become essential in the today globalizing world where different risk aversions and required capital returns determine the firm's appropriate capital structure. The gearing problem is discussed from the traditional point of view as well as Modigliani and Miller's. Under the market imperfections, the firm's capital structure does matter for the firm's value. Finding optimum gearing level leads to minimum cost of capital maximizing the firm's total capital value on the market. Optimal capital structure existence for any firm on the market suggests that financial mangagers' and strategic accountants' primary task is to find the optimum or equilibrium gearing level. Turning upon the capital market non-stationarity state explains why still today, in the Internet era and nearly perfect information mobility, finding an optimal capital structure for financial managers remains a quest. In the real world, optimal capital structure of the firm promptly changes as capital market conditions and the players on it change their position. So, the correlation between gearing level and potential variables of influence is tested for a sample of 86 Croatian firms comparing to the results of prior research in other countries (particularly Bevan and Danbolt's, and Rajan and Zingales' for UK). Since there's a great part of short-term debts in total liabilities, the analysis of gearing in Croatian enterprises is extended by this component besides the long-term debts according to traditional theory (the same was the case with Bevan and Danbolt's research). The cross-sectional analysis of gearing in Croatia consists of two models. The first one is comparable to Bevan and Danbolt's analysis according to their first definition of gearing as non-equity liabilities to total assets. The other one is based on the gearing ratio with equity in the denominator that is widely used in Croatian accounting and financial analysis. Three of four independent variables are adopted from Bevan and Danbolt's research and tested for the sample of Croatian companies. The fourth one - market-to-book ratio couldn't be included in the model because of unavailable data on market value of equity. The others are comparable to their analysis: size (the proxy is the natural logarithm of sales), profitability (the ratio of earnings before tax to the book value of total assets) and tangibility (the ratio of the book value of depreciated fixed-tangible assets to the book value of total assets). The results are in accordance with prior research, particularly with the Bevan and Danbolt's decompositional analysis and short-term component of gearing correlation to those independent variables. The gearing problem becomes even more complex in particular transition environment like Croatian economy is. The companies are overdebted and they look desperately for "fresh" capital hoping to attract foreign partners to invest or trying to get some expensive bank loan to survive. With high risks, low earnings and cash flows insufficient for debt repayments, additional resources are needed but hardly provided and the magic circle goes on. That makes driving a business and a gearing policy in Croatia to be a real challenge. Survival can't be achieved in any case without right strategic decisions supported by strategic accounting information. It's crucially important to create the gearing policy based on reliable strategic accounting information considering its predicted business consequences and its contribution to maximizing the firm's value, instead of leaving it to "ad hoc" solutions as it is often the case with Croatian enterprises.

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Tip objekta: Članak
Dodatne informacije: 2002/V
Ključni pojmovi: capital structure determinants, gearing, financial management, strategic accounting
Teme: 6 Tehnologija (primijenjene znanosti) > 65 Menadžment i organizacija industrije, trgovine i komunikacija > 657 Računovodstvo
Odjeli: Fakultet ekonomije i turizma "Dr. Mijo Mirković"
Datum pohrane: 05 Feb 2014 12:42
Zadnja promjena: 05 Feb 2014 12:42
URI: http://eknjiznica.unipu.hr/id/eprint/3064

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