Research on financing decision-making practices in Croatian companies

Abstract

The aim of this paper is to identify the main practices of Croatian companies in financing decision-making. Following the best-known field study by Graham & Harvey (2001), this paperpresents the main findings on capital structure decisions of Croatian companies. Primarydata collected using a highly structured survey questionnaire through an extensive one-timecross-sectional survey conducted in 2018, was analysed primarily by descriptive analysis, afterwhich a univariate analysis on the responses conditional on the selected companies’ characteristicswas performed. According to the survey responses, practitioners report the perception ofcreditworthiness, financial flexibility and financial independence as the most important factorswhen deciding on debt financing. However, the importance of these factors is not driven by theinformation asymmetry problem, as the pecking order theory assumes. Furthermore, there is alsoa moderate support for the trade-off theory in terms of medium high proportion of companiesthat target their debt ratios. Yet, it should be emphasized that in the process of debt financingpractitioners are concerned about the arising risks, but not the benefits of debt financing, andthus show risk-averse behaviour. As the results of empirical research deviate from the theoreticalassumptions, both in this study and in similar studies conducted in the USA and Europe, it raisesthe questions about applicability of the existing theories and the need for their revision.