The Influence of Capital Structure Bias from the Target Level on Company's Value

This paper is aimed at studying the influence of capital structure bias from the target level on the firm value. On the basis of the sample comprising 115 Russian joint-stock companies for the period from 2010 to 2015 we analyze how deviation from the target capital structure affects the value of companies. The results obtained from the regression analysis reveal that Russian investors and shareholders are guided in making decisions regarding the financing primarily by the actual value of the debt instead of the target capital structure. The results of the analysis indicate that firms with a higher debt load have greater value regardless of the target level of the leverage. Thus, this research might be the empirical basis for managers who intend to deviate from the target capital structure and to take a loan for funding the firm. Besides, according to the obtained inferences, the use of additional equity for financing activities adversely influences the firm value. In addition, this paper contributes to the theory of the capital structure confirming the significance of the pecking order theory and not affirming the applicability of the trade-off theory for the investigated sample of Russian companies.