IMPACT OF THE CAPITAL STRUCTURE ON THE VALUE OF US AND SERBIAN FIRMS / Uticaj strukture kapitala na vrijednost američkih i srpskih firmi


  • Dragan S. Jović Centralna banka Bosne i Hercegovine, Sarajevo



According to the Modigliani–Miller theorem, the value of the company does not depend on the capital structure (debt to equity ratio). We checked the theorem in two financial markets, the global one and the regional one. In the research, we used a multiple linear regression model, panel model and VAR. The theorem did not withstand an empirical check on the financial markets of the United States and the Republic of Srpska. The value of American and Serbian firms is not indifferent to the movement in the capital structure. The growth of debt in relation to the capital in the USA and the Republic of Srpska diminishes the value of firms, i.e., value of the PE ratio. The inverse relationship between the capital structure and the value of capital is economically logical and expected, because the growth of indebtedness increases the risk of liquidity and solvency. The growth of indebtedness influences reducing of the demand for company shares and reducing of the value of the firm, i.e. reduction of the PE ratio.