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Working paper

The Influence of Capital Structure on the Value of Public Companies in Chemical Industry

Markovskaya E., Bitiukova A. V.
The study is about the influence of the financial leverage and its square term on the value of a firm in chemical industry in different parts of the world. The maximizing of the value of a firm is considered to be one of the main goals of business activity of any company. Thus, the management needs to choose different strategies including financing one that raise firm’s value. For that the relationship between firm’s value and its financial leverage needs to be known as specifically as possible. In the study these specifications include country and industry differences. The panel data analysis of public chemical companies in five parts of the world is used to reveal the types and signs of this influence. It is shown that the financial leverage and its square term have opposite influence on the value of a firm for the whole sample as well as the companies in different parts of the world. This means that small and big amounts of debt have different effect on firm’s value. The influence is not the same in different parts of the world. The companies in Europe, Asia and Africa would better follow the pecking order theory of financing and the companies in North and South America – the trade-off theory for choosing best financing strategies in order to maximize the value of firms.