Relationship between Capital Structure and Profitability of Largest Russian Companies

The research provides information about the relationship between financial leverage and firm’s profitability, which is an important issue nowadays for many investors due to the large number of economic shocks that Russian companies have experienced in 15 recent years. At present, this theme is poorly covered in the works of Russian and foreign authors, while it was one of the main directions for research in the financial management in the beginning of the twenty first century. The study implies the construction of regression models on panel data containing indexes that reflect financial position of the company as well as country-specific characteristics on profitability of the firm (ROA) and debt ratios as dependent variables. According to the obtained results, increase in leverage is accompanied by the worsening of firm’s efficiency and this conclusion is consistent with the pecking order theory, in which it is assumed that external financing increases financial risk and companies should use internal financing first.