Financing Behavior of Romanian Listed Firms in Adjusting to the Target Capital Structure

This study investigates financing behavior in adjusting to the target capital structure of Romanian firms listed on the Bucharest Stock Exchange during the period 2004–2011. Using a dynamic panel data model and Arrelano’s and Bond’s Generalized Method of Moments (GMM), we estimate the size of the adjustment speed to the target capital structure of Romanian listed firms and investigate which of the determinants of the target capital structure explain the financing behavior of these firms. The results show that the size of the adjustment speed is quite high for Romanian firms, indicating that their deviation from the target capital structure is costly. In addition, we found that profitability and the firms’ size and asset tangibility are the most important determinants of the target capital structure and that the ownership structure has no significant effect on the target capital structure of Romanian firms. The theoretical and practical implications of these findings are discussed.