Determinants of Capital Structure of Mining Companies in Emerging Markets

Capital structure choice is one of the main elements of companies’ financial policy and its influence on the enterprise value of the firm is significant. However factors, that determine this choice, are not homogenous and could be divided on the three major groups: traditional, country-specific and industry-specific. After worldwide financial crisis in 2008 there was essential changes in principles of the target debt level formation to the trade-off capital structure theory statements and noticeable increase in significance of industry-specific determinants noticed for mining companies by number of researchers. Situation slowly changes towards its pre-crisis condition nowadays but dependences between the debt level and different capital structure determinants are still unstable and could not be judged uniquely without empirical research.In the present study influence of such industry-specific factors as specialization of the firm, number of the direct competitors and mining industries development prospective in the region of company’s operation in the post-crisis period 2009-2012 were studied and their significance were evaluated compared with traditional and country-specific determinants. Size of the company, its net income, tangibility, income taxes and growth opportunities were studied as traditional determinants and bank rate of the country, inflation rate and corruption level in the country were taken as county-specific determinants. The sample of the study was formed by 539 mining companies, operating in Russia and Ukraine and methodology of the study was based on the dynamic trade-off model of capital structure choice with partial correction.According to the results of the research conclusion about possibility of using the trade-of theory principles in order to describe the target debt level choice, dynamic nature of capital structure formation and also about the certain level of significance of all studied determinants except the corruption level of the country. The influence and significance of influence of industry-specific factors are comparable to traditional and country-specific factors, and surpass country-specific determinants with the sustainability of impact. Moreover, some features of traditional determinants form of impact could be interpreted as an evidence of possibility of using peaking order capital structure theory in the target capital structure choice model and all county-specific factors used in this model are significant only as a speed of adjustment to the target capital structure determinants