The Impact of Financial Stability on the Correlation between Capital Structure and Value of Public Companies in Chemical Industry

The study is about the relation between the financial leverage and the value of a firm in the chemical industry. Financial stability (low level of growth and financial health) is considered as a factor that can influence the relation. The panel data analysis of the sample of public chemical companies is used. Instrumental variables are used to avoid endogenity problem of the leverage in the model. We find that the relation between the financial leverage and the value is positive. We show that the big amounts of debt past the optimum level influence company’s market value negatively. We also find that financial stability influences the relation between the leverage and the value only partly. Financial health strengthens the relation while growth has little or no influence on the relation. Testing for the change of influence patterns before and after financial crisis of 2008 gives significant difference only in relation between the value and the square financial leverage.