What is the significance of variance analysis?

Answer 1

Patrik BAUER*

The modern theory of capital structure was established by Modigliani

and Miller (1958). Thirty-seven years later, Rajan and Zingales (1995,

p. 1421) stated: "Theory has clearly made some progress on the subject. We

now understand the most important departures from the Modigliani and

Miller assumptions that make capital structure relevant to a firm's value.

However, very little is known about the empirical relevance of the different theories."

Similarly, Harris and Raviv (1991, p. 299) in their survey of capital structure theories claimed: "The models surveyed have identified a large number of potential determinants of capital structure. The empirical work so

far has not, however, sorted out which of these are important in various

contexts." Thus, several conditional theories of capital structure exist (none

is universal), but very little is known about their empirical relevance. Moreover, the existing empirical evidence is based mainly on data from developed countries (G7 countries). Findings based on data from developing

countries have not appeared until recently - for example Booth et al. (2001)

1

or Huang and Song (2002)

2

. So far, no study has been published based on

data from transition countries of Central and Eastern Europe, at least to

the extent of this author's knowledge. The main goal of this paper is to fill

this gap, exploring the case of the Czech Republic.

The structure of this paper is as follows. In Section 1 the most prominent

theoretical and empirical findings are surveyed. In Section 2 the potential