Empirical Analysis of Capital Structure Determinants of Russian Oil and Gas Companies

Abstract

The theory of capital structure, developed in the last century, determines the factors on the basis of which the management of a given company must form its system of financing decisions in order to optimize the capital structure and, accordingly, to increase the company’s value. Despite the fact that the data of the theory are based on the fundamental concepts of corporate finance, such as the present value of future revenues, information asymmetry, and profitability, the tenets of different theories contradict each other. These ambiguous results concerning the influence of various factors on a company’s capital structure form the motivation and problem of this study. Decisions on financing a company have an impact on its value, and therefore its financing method is a very significant factor for investors, directors and other stakeholders, which makes the study of target capital structure determinants particularly relevant. The topic of the capital structure of Russian companies has barely been addressed in existing studies, since most often they are based on the Western market. Thus, the identification of regularities in the system of decisions on capital structure through the case study of oil and gas companies in Russia, as well as the definition of theories that explain these patterns, are of particular interest, motivated by the ambiguity of previous studies, and the lack of such studies on Russian companies. Identifying the existing patterns affecting decisions on capital structure and the theoretical framework that describes them will enable companies to develop their own system of capital structure decisions.