Industry-Specific Determinants of Capital Structure in Russian Companies

The purpose of this paper is demonstrating the importance of industry in firm’s leverage decision. Many empirical studies have confirmed the influence of industry average leverage on the capital structure of the firm. In this paper, an attempt was made to assess a set of industry factors that influence industry average financial leverage and thereby the capital structure of the company. The analyzed industry characteristics were the industry share in Russia's GDP, the level of risk in the industry, the presence of backbone enterprises in the industry, as well as the industry belonging to high-tech and knowledge-intensive industries. The method of research is the method of instrumental variables, where the instruments are industry characteristics, evaluated by 2SLS. A sample including more than five thousand Russian companies and their financial indicators for 2019 was tested. First of all, it was proven that the industry share in GDP does have a direct positive effect on the industry average capital structure. Moreover, it was found that a set of industry factors explains industry average leverage, which in turn has an impact on firm leverage. Thus, the impact of industry factors on a firm's capital structure was revealed. This paper consists of four main parts: introduction, review of theoretical and empirical literature, statement of the research question, methodology, description of the obtained results and conclusion.