Debt and Corporate Performance: Evidence from Russian Companies

The main aim of this paper is to investigate the relationship between the level of leverage of a company and its corporate performance on Russian market. To investigate the relationship, the regression analysis is performed for a sample of 50 Russian companies from different industries for the last 4 years. In this study, Return on equity (ROE), Return on Assets (ROA) and Gross Profit Margin (GPM) are taken as the measures of performance. The estimates of company’s leverage in this model are the following: Short-term debt ratio (STD) and logarithm of long-term debt ratio (log(LTD)). Also, the model includes two control variables: the size and the growth rate of a company. Size is measured by the value of total assets in the company, and the growth rate is the percentage change of total assets compared to the previous year. The panel data approach is used to test the hypothesizes, whether there is a positive relationship between the value of debt (independent variable) and corporate performance (dependent variable). The results of the study reveal that there exists significantly negative correlation between company’s leverage and its financial performance. Even though these findings contradict the existing theories on capital structure, they are consistent with previous empirical researches on the subject. Since Russian economy is developing, such results, contrary to the theoretical background, are unsurprising.