This document summarizes a study on the impact of capital structure on risk and firm performance using empirical evidence from companies listed on the Bucharest Stock Exchange between 2000-2016. The study aims to analyze major capital structure theories and their relevance, explore factors influencing leverage, profitability, and risk, and discuss gaps in previous Romanian research. Variables examined include leverage ratios, size, growth, liquidity, risk, and profitability. The results provide some support for both the trade-off and pecking order theories of capital structure. Future research could further analyze macroeconomic variables and their effect on capital structure decisions.

1. The Impact of Capital Structure on Risk and FirmPerformanceand Empirical Evidence for the
Bucharest StockExchange Listed Companies
Elena Alexendra Nenu, Georgeta Vintila and Stafen Cristian Gherghina*
Received: 21st December 2017; Accepted: 3rd April 2018; Published: 10th April 2018
PRESENTED BY:
MUHAMMAD SHAHBAZ KHAN
MBA IN FINANCE 4 YEARS EQ TO MS AND M.PHIL
DEPARTMENT OF MANAGEMENT SCIENCES

2. Agenda
Research Objectives
Research Question
Variables
Relevance and Irrelevance Theories
Research Gaps
Sample
Concluding Remarks

3. Research Objectives
•To analyzes the evolution of the main theories regarding the capital structure.
•To discuss the related impact of capital structure on risk and corporate
performance.
•To explore the variables that influence the overall evolution of the a particular
sector (Non-Financial).

4. Research Question
Which are the main drivers of firms leverage, Profitability, and Risk for listed
Companies on the Bucharest Stock exchange?

5. Variables
Independent Variables
Leverage Short term debt ratio
Long term debt ratio Shares price volatility
Company size Assets Tangibility
Growth opportunity Quick liquidity ratio
Current liquidity ratio Market capitalization
Depreciation Cash Ratio

6. Variables
Dependent Variables
Risk
Profitability

7. Relevance and Irrelevance Theories
Subsequently, the approach known as the traditional thesis of capital structure relevance has
been surpassed when Sample Modigliani and Miller (1958) published their paper regarding the
irrelevance of the capital structure decision on companies values.
Primarily, the theory was developed under perfect capital market condition, but the review of
the initial hypotheses and the acceptance of market imperfection led to various papers that
attempt to explain the importance of the capital structure.
Among the research direction could be highlighted the trade-off or the static equilibrium
theory (Modigliani and Miller 1963), the irrelevance of capital structure theory (Miller 1976),
the information asymmetry and the signal theory( Brealy et al. 1977), the theory of contracts
(Jensen 1986;Jensen and Meckling 1976), the pecking order theory (Myers 1984;Myers and
Majiulf 1984), and market timing theory (Baker and Wurgler2002).

8. Research Gaps
First different to previous papers that examined the listed companies in Romania (Brenden
2014;Sumendera 2015;Vatavu2015) the current paper examines the influence of capital
structure on multiple variables such as leverage , Profitability, and Risk
Secondly our purpose is to extend the analyzed period in other studies accomplished on the
Romania economy, such as Brendea (2014) __ Which considered the period (2004 to 2011),
Vatauv (2015) which covered the period 2003-2010, and Sumedrea (2015)__ that focus on the
economic crisis and analyzed the period 2008-2011.
Therefore, Our approach covers an extanded time frames , namely 2000 - 2016

9. Sample
•Our database for this analysis included non-financial companies listed on the Bucharest Stock
Exchange (henceforth “(BSE n.d )”, the analyzed period being 2000-2016.The annual
observations were collected through Thomson Reuters Eikson platform.
•The study included 51 companies ,but only 35 of these have been listed throughout the entire
period. The last companies included have been listed in 2007--- one company , and two
companies in 2008.
•We have considered this option because as can be seen in the Appendix A , in this period
important changes have occurred. Thereby, in 2001, 52 companies were delisted from BSE.

10. Concluding Remarks
•Somehow the trade-off theory is supported by the empirical outcomes, It states that there is an
advantage to financing with debt, the tax benefits of debt and there is a cost of financing with
debt, the costs of financial distress including bankruptcy costs of debt and non-bankruptcy costs
(e.g. staff leaving, suppliers demanding disadvantageous payment terms,
bondholder/stockholder infighting, etc.), since a positive link occurred between firm size and
leverages.
•As well, the pecking order theory was supported in as much as firm profitability appeared to be
negatively related with short-term and long-term debt ratios.

11. Future Suggestion
 Therefor, as a future research avenue ,Our aim to is to cover variables such as
GDP, inflation rate, and examine their influence on firms capital structure
decision.

12. Thank for your listening