Sectoral Determinants of Capital Structure in Slovak Firms: An Empirical Investigation

Abstract

Background: Capital structure refers to the optimum mix of equity and debt that funds a firm's operations and investments. Determining the optimal capital structure is still one of the most basic challenges of corporate financial management.

Purpose: The primary objective of this study is to analyse the capital structure of Slovak companies, with particular emphasis on the role of sectoral affiliation and firm-level financial characteristics. It empirically examines three central hypotheses concerning the determinants of capital structure and indebtedness of Slovak companies.

Study design/methodology/approach: The study uses both descriptive and inferential statistical techniques like ANOVA, correlation analysis, and multiple linear regression incorporating eight explanatory variables to examine the determinants affecting companies´ capital structure. The relationship between financial leverage and return on equity (ROE) was explored both in the aggregate sample of firms and on sector level. 

Findings/conclusions: Sectoral analysis reveals that firms in the tertiary and quaternary sectors exhibit higher average indebtedness than those in the primary and secondary sectors. The strongest negative predictors of indebtedness are the equity ratio and return on assets (ROA). Alternatively, sales volume shows a positive correlation, suggesting that larger firms employ more debt due to their broader capital needs. Combined results demonstrate that capital structure is determined by an intricate interaction among firm-specific attributes, namely profitability, internal capital availability, size, and industry factors. Empirical evidence derived from the Slovak context extends beyond national significance; it offers regionally representative insights that can inform strategic decision-making among firms, financial institutions, and policymakers throughout Central Europe.

Limitations/future research: Follow-up studies can be used to give an extension of the work by incorporating time-series data, distinguishing between short-term and long-term debt, or including ownership structure, firm age, and capital market access.